In Recent Time, Outward Fdi Has Been Significantly Increased from China and India. Discuss the Factors Responsible for Such a Growth. Do You Think Ib Theories (Oli and Idp) Adequately Explain the Reasons for Outward Fdi

3336 Words Aug 9th, 2012 14 Pages
Assignment 2:
“In recent time, outward FDI has been significantly increased from China and India. Discuss the factors responsible for such a growth. Do you think IB theories (OLI and IDP) adequately explain the reasons for outward FDI.”

Introduction

In the recent time, significant rise of outward foreign direct investment (FDI) was witnessed from developing countries like China and India. The Organisation for Economic Co-operation and Development (OECD) defines FDI as an investment that reflects the objective of establishing a lasting interest or long-term relationship by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy other than that of the
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India has increasing GDP growth from 2008 – 2009 in terms of GDP real growth rate [2008 – 6.2%, 2009 - 6.8% and 2010 - 10.4%] and GDP – per capita (PPP) [2008 - $3000, 2009 - $3200, 2010 - $3500] (CIA, 2011). Hong (2010) also stated that India’s pre-1990 OFDI period was limited due to government restrictive policies like Monopolies and Restrictive Trade Practices Act and Foreign Exchange Regulation Act but after 1991 to present time, OFDI was expanded into developed region as economic liberalisation process during the 1990s provided strong impetus for firms to move abroad leading a turning point making OFDI as preferred strategy for firm’s survival (Figure 1: China and India’s OFDI).

This paper will examined the factors that contribute to outward FDI ( OFDI) of China and India and then whether International Business theories like Dunning’s eclectic Paradigm OLI model and Investment development path (IDP) are adequate to explain the reasons for the growth of OFDI. International business theories like Dunning’s eclectic Paradigm OLI model which are sets of advantages that either encourages or discourages a firm from undertaking foreign activities and becoming an multinational firm (MNE). OLI model consists of O = Ownership advantages or firm specific advantages, L = Location advantages or country specific advantages, and I = Internalization advantages or transaction costs advantages. Besides OLI model, theories like investment development path (IDP) can also

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