What Are The Factors Involved In Process Of Economic Growth Of Countries?

First of all, the investment flow into the host country does not produce an immediate effect but accrues benefits over a period of time and the level of the positive effect may vary from country to country. The conditions that FDI faces in the developing countries may slow down the process. The issue is that in order to make use of all benefits, which were discussed earlier, the host country has to have a certain level of education, technology, sufficient openness to trade and appropriate policy regulations. The restrictive policy or insufficient precondition state of economy of the host country will not bring the expected advantages. Moreover, the developing states having a low development level may experience certain disadvantage of the foreign direct

[UNCTAD2003] As a result, global FDI grew much faster than either trade or income in the last two decades. Whereas world real GDP increased at an average rate of 3.00% between 1985 and 2004 and world exports by 6.29%, world real inflows of FDI increased by 9.85%. The liberalization processes varied considerably, however, across countries in timing, speed, and magnitude.

To attract FDI, corporate tax incentives has been used worldwide, as FDI significantly boost up the productivity and the growth of economic. The reason why China has become the most attractive destination of FDI is that its FDI policies, huge labour supply and low cost of it, stable economic and political environment. (Deng et al., 2007). FDI inflows into China

In previous studies of FDI and its effect on output and economic growth, many economists’ researchers have concluded that foreign investment has a positive impact on economic development. There are several studies of FDI “as an engine for growth” in China.Zhang (2006)

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

There is growing consensus among researchers and academicians that in this globalized world the burden of private investment is increasing over Foreign Direct Investment (FDI). Because of a declining trend in public investment the task of capital formation rests over the shoulder of private investment and thus FDI playing a leading role in determining the fate of the economy. The economies receiving more inflow of FDI, are realizing a comparatively high growth and vice-versa. This is also expected to be happen in India. The present paper discusses the relationship between the inflow of FDI and GDP. It has been found that FDI has a positive correlation with GDP. the regression analysis between GDP and FDI of different sectors also supported the same result which shows that FDI inflow in India is playing very important role in determining the size of GDP.

After opening of the trade barriers in 1991, the foreign investment inflows have increased enormously. Foreign capital, which actually plays an important role in increasing productivity of labor and accumulation of foreign reserve in developing countries to meet the current account deficit , is consist of foreign direct investment (FDI) and foreign portfolio investment(FPI). Both have worked as an instrument of global economic integration and stimulation. Apart of providing access to the foreign capital FDI also offers modern era technology, tools of creativity, desired skill sets and other complementary skills. In addition of producing additional economic activity and generating employment, foreign investment facilitates in flow of sophisticated technology.

Manufacturing is already seeing signs of a renewed boom in investment in diverse industries including defence, heavy engineering, power, transportation including automobiles, petroleum and petrochemicals, textiles, and food processing. Unlike in the past, where manufacturing came up in the proximity of metros and mini-metros unless there were backward area benefits or other incentives, this time around manufacturing investments are spread almost all across India. This is, of course, after evaluating attributes such as the availability of raw material, manpower and its relative costs, environment issues, supply chain and logistics issues, and market factors which render availability of fiscal incentives as just one of the many variables in the manufacturing location selection grid. The services sector is also moving beyond IT. The largest growth in the coming years will be in a host of new services including retail, healthcare, leisure and recreation, education and coaching, construction and other real estate, grooming and well-being, and travel and hospitality. This, in turn, has many dimensions, with the most important being the certainty of unprecedentedly large numbers of women entering the workforce. Further, these sectoral jobs are even more spread out across the length and breadth of both urban and

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).

India remains the third most attractive destination for FDI, after China and the United States of America, for 2013-2015, according to a survey of global companies conducted by UNCTAD. Foreign Direct Investment in India has increased from $ 1,04,411 in year 2000-2001 to $ 6,96,011 in 2011- 2012. The distribution of FDI inflow is concentrated to some sectors. Services , Construction, Communication, Drugs and Pharmaceuticals, Chemicals, Automobile Industry etc. are among the leading sectors which bag major share of FDI inflows. (Figure 2.1)

Yousaf (2008) Analyses of more than 3 decades reveal that FDI has positive relation with imports in short & long-run where as relationship with exports is negative in short & positive in the long-run. FDI is an economic influencer of economy of a country specially developing countries experience accelerated GDP when successful in attracting FDI as in case of Pakistan.

“Make in India” campaign is an initiative that attracts the industrialists to make India a manufacturing hub that helps to create jobs. India ranks 142nd in the ease of doing business and it is becoming increasingly difficult for both Indian and foreign businessmen to start a business in India. The infrastructure in India is not good enough to attract investors. There is a lack of proper connectivity between the cities in India. The other bottleneck are taxation, Government policies, labor laws, ease of obtaining licenses and land acquisition. India must also compete with its neighbor China as both the nations are seen as growing

The government has been opening up various sectors and privatize some sectors (telecom, aviation, insurance and energy). This shows its positive attitude to FDI inflows, Retailing has already been looked at as a prospective area for FDI. The Government is also promoting investment in supply chains and infrastructure like real estate through FDI to facilitate retail growth.

Foreign Direct Investment is the major tool of attracting International Economic Integration in any nation. It serves as a relationship between investment and saving. Many developing countries like India are facing the scarcity of savings. This crisis can be solved with the help of Foreign Direct Investment. In this paper an endeavor has been taken to analyze the trend of FDI in last 11 years and to analyze the relationship between foreign direct investment and macroeconomic factors like GDP, Exports and Foreign Exchange Reserves (FER) in India using data for a period from 2001 to 2012. This study has investigated the twin objectives viz trend of FDI and relation of FDI with macroeconomic factors viz GDP, Exports, Foreign Exchange Reserves (FER).The trend and relation between these variables has been analyzed by percentage analysis, Compound Annual Growth Rate (CAGR), and Correlation Analysis. Findings of the study indicate that FDI can be used as vehicle for growth of macroeconomic indicators of the economy.

The present study is descriptive in nature based on secondary data collected through newspapers, magazines, research papers and various publications of government, to analyze the issues and prospects of FDI in one of the most significant sectors of Indian economy.