The Causality Of Foreign Direct Investment And Economic Growth

CHAPTER 1 INTRODUCTION 1.1 BACKGROUND OF THE STUDY Foreign Direct Investment (FDI) is one of the biggest tools for international economic integrations. Firms view overseas expansion as a necessary step to achieve a more effective access in the markets where they presently have low representation as stated by Tyu T. and Zhang M.

Benefits for FDI in China 4.1 Economy is affected in many ways The benefits brought by FDI to China are apparent. Economy is influenced by FDI in a number of ways. FDI involves transfer knowledge in the host country, which will create an increase on the existing stock of knowledge through labor training, the transfer of skills, and the transferring of new managerial and organizational experience. Also, it can help local corporations to access to advanced technology by capital accumulation in host countries (Mello, 1999 and Mello, 1997). Furthermore, FDI may allow China to develop in technology and knowledge which are not readily available locally, as a consequent increase productivity growth through the economy (Jose, 2003).

1.2. Recommendations for the US companies “Promoting foreign direct investment is an important opportunity to accelerate our economic recovery.” President Obama, June 2011 The Foreign Direct Investment is stimulated by diverse macroeconomic factors such as the GDP, GDP per capita and also by the political stability of a country. The US is the country, which receives the more FDI in the world; even tough some other countries recently have increased their FDI considerably in term of growth. The overall quality of the infrastructure in the US

http://dx.doi.org.ezproxy.liv.ac.uk/doi:10.1162/rest.89.3.482 (Accessed on 13 November 2012) Miao Wang (2010), “Foreign direct investment and domestic investment in the host country: evidence from panel study”, Applied Economics, 42, pp. 3711-3721 [Online] Available at: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/detail?vid=4&hid=3&sid=d270c6f2-d2fd-483c-8224-564af5d207e7%40sessionmgr110&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d# (Accessed on 13 November 2012)

INTRODUCTION Foreign absolute investment (FDI) has become to be accepted as one of the a lot of able adjustment of cartoon flows from alien sources. The use of this address has aswell become a cogent aspect of architecture basic in developing countries about the world. However, the allotment of investment from

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,

FDI and Economic Implications Many scholars argue inward FDI have positive economic impacts on the host country (Buckley et al., 2007; Globerman, 1979; Lipsey and Sjöholm, 2004; Nguyen and Nguyen, 2007; Zhu and Tan, 2000). According to them, there is a causal relationship between FDI and economic growth, where FDI stimulates economic growth. Nguyen and Nguyen (2007) state FDI promotes economic growth and is also a tool to attract FDI. The literature by Anwar and Sun (2011) shows FDI and domestic capital have a significant positive impact on economic growth. Thus, FDI has a positive impact on the economic growth of the host country.

There are a number of strategies that a business wishing to expand their operations internationally can use. These include Export, Foreign Direct Investment, Relocation of production, Management contracts and Licensing & Franchising. Generally there are two main sources of funds to finance the global expansion of a business. These

By Geography ‘Global FDI flows rose by 9 percent in 2013 to $1.45 trillion from $1.33 trillion in 2012’ (UNCTAD, 2014) Between 2012 and 2013, FDI inflows increased in all major economies - developed, developing and transition economies. FDI flows to developed economies increased by 9 percent, reaching $566 billion, for developing countries they achieved a new high of $778 billion and inflows to transition economies grew by 28 percent to $108 billion and accounting for 7percent of global FDI inflows.

Foreign direct investment in China - Deng, Ziliang. 2011, Foreign direct investment in China: spill over effects on domestic enterprises / Deng Ziliang Routledge New York This book provided great insight regarding foreign direct investment (FDI) and it ability to stimulate domestic enterprises productivity. It contained specific research conducted in

The spillover effects that arise from foreign direct investment (FDI) has amassed an extensive body of literature in the past two decades. Most of these studies focused on the productivity and knowledge gains towards domestic firms. Such spillovers are thought to arise as a result of horizontal and vertical linkages between foreign and domestic firms. The early studies citep{blomstrom, Kokko, sjoholm, haddad, aitken} who follow the pioneering work of cite{caves} focuses on externalities that affect the productivity of firms within the same industry. A review of such studies by cite{gorg} pointed out that the evidence for intra-industry productivity spillover is weak or at best mixed.

Foreign Direct Investment in Poland Foreign direct investment, according to the OECD definition, means an investment made ​​by a resident of one country (the direct investor) in order to achieve long-term benefits of capital employed in the company - a resident of another country (called the direct investment enterprise). Usually, foreign investment in many ways have a positive impact on the economy of the country in which they occur. The introduction of new technologies leads to the modernization of production and increase the level and the adaptation of new methods of management and organization improves the functioning of the company. Companies with foreign capital play an important role in the reconstruction and modernization of the

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.

Reference: Agarwal, J.P. (1980) Determinants of Foreign Direct Investment: A Survey, Weltwirtschaftliches Archiv, 116, pp. 739-773 Akinlo, A.E. 2004. "Foreign direct investment and growth in Nigeria: An empirical investigation". Journal of Policy Modelling, 26: 627-39.

(01)Size of the Market- Econometric studies comparing a cross section of countries indicate a well- established correlation between FDI and the size of the market. Some studies found GDP growth rate to be a significant explanatory variables, while GDP was not, probably indicating that where the current size of