Relationship Between Fdi And Economic Growth

Ajami and BarNiv (1984) attempted to explain the variability of FDI across countries. They emphasized in following determinants of FDI in US: relative size of the US market, change in exports to the US, growth of GNP in the home and host countries, decline in value of the US dollar during the late 1970s, inflation rates in the home and host countries, attractiveness of the US capital markets and research and development and manufacturing as a percent of GNP.

(Eds) T. Moran, E. Graham and M. Blomstrom, Institute for International Economics, Washington, DC, pp. 221–44. (Accessed on 13 November 2012)

The effects can be negative or positive. According to the theory of Hill (2003), FDI can affect host countries on resources-transfer effects, employment, competition and product and process innovation. There are a small number of research available that explain the behaviour of local companies when FDI take place. Nevertheless, there are many research that explain the benefits for the local economy. Foreign direct investment can increased indirect productivity for host country companies through the realization of external economies. Generally these benefits indicates the importance of the way in which the influence is transmitted that referred as “spillovers” (BlomstrOrn,

Economic growth and benefits of foreign direct investment depend on factors such as the industry and the learning curve. Foreign direct investment (FDI) is, “a controlling ownership in a business enterprise in one country by an entity based in another country.” [1] There are three strategic types of FDI: Horizontal FDI, Platform FDI, and Vertical FDI. The horizontal FDI is, “when a firms duplicates its home country-based activates at the same value chain in a host country through FDI. Platform FDI occurs when “foreign direct investment from a source country into a destination country for the purpose of exporting to a third country. Vertical FDI “takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.”[1] It is a common belief that FDI increases local growth (economic development); and the benefits come from transfer for technology and management know-how, introduction of new processes, and employee training. [2]

Foreign Direct Investment (FDI) has been considered important for the growth of a country. When the individuals or companies from a country invest in another country, it is regarded as FDI. FDI not only strengthens the manufacturing base of the host country but also contributes to the strengthening of the economic outlook. FDI can be seen as an investment that leads directly to job creation in an economy. The unemployment rate decreases due to FDI, which leads to stability in economic, social and political spheres. This leads to establishing the notion that FDI is necessary for a country because it helps in strengthening the economy of a particular country. Ireland has been benefitted by

This paper looks to determine the causality of foreign direct investment and economic growth. Implementing common and basic econometric techniques to test the association between these two topics in The United Arab Emirates. In past research it has been implicated that FDI has causality in economic growth mainly due to the ability FDI has to introduce new technology to the host country from the foreign countries who are in many cases much more technologically advanced. However, we hope to show that though there may be a stronger causality between FDI to economic growth that there is enough evidence to show that there are cases in which economic growth is the cause for the expansion in FDI that has taken place. =Results from the Solow growth model and Unit root test will allow us to interpret the true relationship between these two economic factors for the United Arab Emirates specifically.

FDI plays in the economic growth process of the host country. A good number of the studies and discussions show that there exists a strong correlation between FDI and economic progression. In addition to being an engine for diffusion of knowledge and transfer of technology, FDI also stimulates international trade, domestic investment, expands host nation 's domestic savings, and increases the host country 's foreign exchange reserves adjusting its Balance of Payment post. These factors increase the economic growth of the host nation.

The expected sign for the slope coefficient (β2) on GDP is positive which signify relationship between FDI and GDP to be positive after several journals have been study. According to Chowdhury and Mavrotas (2006), a bidirectional causality relationship found between GDP and FDI in the case of Malaysia. It indicates that the FDI and GDP have significant relationship and will affect one and another in the same direction.

2. The model of economic growth based on production functions (the Welfens/Jasinski model and its modifications). To show how FDI influence economic growth of a particular country a model proposed by P.Welfens and P.Jasinski is used. It is based on traditional production functions.

This paper will look in depth at the effect of growth from FDI in India. It will first focus on the theoretical and empirical research regarding FDI and its effect on growth. It will discuss the literature that signifies that federal direct investment did help to grow India’s economy and explore why this is happening. It will mainly explore the federal direct investment outcome on growth and will use statistics on India’s economy to further understand this and prove that FDI is very important in order to help grow an economy. It will take a look at linear regression models that show a positive relationship between FDI and India’s GDP.

FDI is where the MNE invests directly in production or other facilities over which it has effective control in a host economy (j &t). According to Pollan (), the definition of the terms “investment” is highly significant to Foreign Direct Investment, which can be typical comprehend as the conveyance of capital to a country. Investment can be defined as money committed or property acquired in order to gain profitable returns, as interest, future income or appreciation in value (business dictionary, 2014). The commonest definition used to understand the idea of FDI is the definition provided by International Monetary Fund’s (IMF). The IMF definition of FDI introduces systems and structures which clearly demarcates foreign direct investment from portfolio investment. According to the IMF, direct investment creates a lasting interest in an enterprise, consisting of a long-term relationship between the investor and the enterprise and that the investor has an outstanding amount of control on the management of the enterprise, while portfolio investment does not create an extended relationship and the portfolio investor is rarely directly partaking in the day-to-day management of the enterprise (Pollan,). FDI however has no comprehensive, authoritative and ubiquitous legal definition and the test for the existence of enough degree of control differs in scope depending on applicable law in a

This study is done Aqeel and Nishat (2004).They analysis FDI flow is well documented in literature for the both developing and developed countries .The main determinants are used income level, infrastructure political and macro stability. The co-integration and error correction technique is applied to check the stationarity. The data is collected annual from 1961—2003 to SBP from the assets and liabilities and foreign investment and exchange rate is from international finance statistic published by Federal Bereau Statistics. The study considers exchange rate, tax rate, variables if they explain the inflow of foreign direct investment. Also included are wages and GDP to check the test the relative demand for labor and market size. All variables indicated correct signs and are statistically significant except for wage rate. The study clearly emphasizes the role of these policy variables in attracting FDI and determining its growth in both short and long run in Pakistan. The study shows that FDI has positive impact in Pakistan.

created the largest job opportunity in India and not the manufacturing industries. Therefore, apart from

Duttaray, Dutt and Mukhopadhyay (2008) examined the causality between FDI and economic growth for 66 developing Countries, taking into account their interaction with exports and technological change and they also conducted time series analysis which is for testing Granger causality in the presence of non stationary time series for each Country and the main findings of this article are that FDI causes growth in several developing Countries but the mechanism through which this works differs across Countries and reverse causality from growth to FDI exists for many Countries. All data used was

A foreign direct investment has become a striking measure of economic development in both developed and developing countries. FDI and FII thus have become instruments of international economic integration and incentive. Fast growing economies like China, Singapore etc., have registered unbelievable growth at onset of FDI. Though US captures most of the FDI inflows, developing countries still account for significant growth of FDI and rise in FII. FDI not only gives access to foreign capital but also provides domestic countries with cutting edge technology, desired skill sets, tools of innovation and other harmonious skills. The policies drafted to stimulate the flow of foreign capital in to India provided much needed an external (or) internal for India to emerge as an attractive destination for foreign investors. External factors such as global economic cues, FDI & FII, Exchange rate and Internal factors such as demand and supply, market cap, EPS generally drive and dictates the Indian stock market. The current paper makes an attempt to study the relationship and impact of FDI & FII on Indian stock market using statistical measures namely correlation coefficient and multi regression during the study period from 2005 to 2014. Sensex and Nifty were considered as the representative of stock market as they are the most popular Indian stock market indices. It concludes that Flow of FDIs and FIIs in India determines the trend of Indian stock market during the study