The Impact Of Foreign Direct Investments On Developing Countries

The BRIC emerging economies are some of the most successful market liberalisers with India having particular prosperity in liberalising its inward capital flows and currency convertibility from 1991 to foreign investors. Post liberalisation India is regarded as one of the fastest growing economies with an annual growth rate of 6.86% compared to 4.07% pre liberalisation (World Bank, 2014). Economists such as Saikia (2012) regards this success down to India’s rise in investment. In the decade after reforms FDI inflows to India has grown by a staggering sixty fold increase to $6 billion (Kletzer, 2004) showing how the India economy has become a major destination for FDI and is reaping the economic benefits.

Within this frame, the literature considered in this overview assumes that FDI is good as a matter of fact. As Jensen puts it, foreign investment “is an engine of employment, technological progress, productivity improvements, and ultimately economic growth. FDI provides both physical capital and employment possibilities that may not be available in the host market. More importantly, FDI is a mechanism of technology transfer between countries, particularly to the less-developed nations” (Jensen, 2003: 587; See also Li & Resnick, 2003). However, the empirical research seems to provide contradictory results (Greenaway & Kneller, 2007; Moran, Graham, & Blomström, 2005) or the outcomes are at least un-informative (Rodrik, 2012). Would be necessary also to take into account to what extent incentives and subsidies offered

They FDI also increase the amount of investment and consumption goods within a country. This sets the pace for development since most of these goods that multinational corporations produce are usually for export purposes. Increased export performance also helps in mobilization of the labor and accumulation of capital within the host country4. This greatly improves the trading position of the country in question by improving its Balance of Trade statement. Increased exports not only increase the productivity of a country but also provide a country with foreign exchange which in turn increases imported capital to assist in the development of a country4.

In 1992, India opened up its economy and permitted foreign portfolio investment in its domestic stock market. Since then, FII has emerged as a major source of private capital inflow in this country. India is more dependent upon FPI than FDI as a source of foreign

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,

According to the International Monetary Fund (IMF), Foreign Direct Investment (FDI) is defined as “cross border investment where a resident in one economy has control or a significant degree of influence on the management of an enterprise in another country.” FDI in the past decade has grown intensively, exceeding the growth of world production and the growth of international trade (Dierk, 2008). Many nations are open and engage in FDI because it will benefit domestic firms. Brazil, a top emerging market, has experienced record number of FDI projects, establishing it as the second most popular global destination in terms of FDI value. The country has experienced steady growth over the past decade and is projected to keep increasing its number of FDIs.

There is no doubt that foreign direct investment (FDI) can do a lot of good for a country, for instance it can add to an economy’s productive capacity and import not just capital but technology, production skills and better management. Multinational Corporation (MNC) is a large corporation which produces or sells goods or services in various countries. MNCs often seek out developing countries in order to set up a branch of their corporation in that host country and they do this to seek out several benefits. One benefit is that the MNC can bring their product to a new market that may not have previously had it. Another reason to produce goods in a country that is not its home country is primarily because; in developing countries the MNC can

Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet

The FDI creates capacity in the form of physical and logical infrastructure. The FPI, which is for short span of time, creates liquidity in the market and it is being invested in domestic financial markets such as capital market, money market, foreign exchange market etc. In this strong inclusive growth environment, the Indian economy is experiencing a robust development during 2006-07. The real Indian GDP growth has gone up to 9.3 percent in the first quarter of 2007-2008 from the level of 9.0 percent in 2005-06, advanced by double-digit growth in both the service and industrial sectors (Malayendu Saha 2009). The increasing trend in Indian economy has made India among one of the fastest growing states in the world.

Developing countries are stuck in a cycle of poverty that can’t be broken from within the domestic economy due to an insufficient supply of investment available in these countries to raise the productivity and income levels of workers. The only way to break the cycle of poverty is through investment from multinational corporations. FDI is an

Foreign direct investment plays a critical role in financing the development of emerging economies. Foreign direct investment benefits countries through a transfer of resources in the form of capital, technology, management of resources, creation of work opportunities, and a positive impact on the country’s balance sheet, typically through an increase in export volumes. These benefits are essential for sustainable growth and development of a country, especially for developing countries. Despite the important role that foreign direct investment plays in helping to achieve the Sustainable Development Goals, many developing countries face challenges in accessing this source.

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]

Kolstad and Villanger (2008) showed that the relationship between FDI and GDP is always positive. When the GDP increases, it means the economy of a country is growing, when the condition of the country is stable, it will attract more foreign investors to invest in the country and thus result in the increasing of FDI. The positive relationship also supported by Oyatoye,Arogundade, Adebisi and Oluwakayode (2011).

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

(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