The paper discusses the notion that foreign direct investment (FDI) can both damage and facilitate economic growth in the world’s poorest regions. It does so with a particular focus on the current trend of global economic integration. The potential dual effects of FDI are discussed here in terms of both their long and short-term effects, i.e. those arising from its routine operation, and those arising from particular events, such as the 2008-9 financial crash. The paper first defines the key terms under discussion, i.e. global economic integration (globalisation), FDI, the world’s poorest regions, and contemporary economic integration. It then discusses the variable effects of FDI on the world’s least developed countries (LDCs). It does so by looking at the ways in which FDI supposedly encourages development (i.e., through technology spillover), and considering the problems which may arise. The paper concludes that the producing a definitive explanation of the dual implications of FDI for LDCs is made difficult – if not impossible – by the variables which arise across the national economies in question.
In positive terms, globalisation can catalyse cross-border capital flows into the poorest regions, alleviating poverty through increased government revenue (through taxation), knowledge spillovers, capital formation, and employment (Aswathappa, 2010). Analysts such as Borensztein et al. (1994) considered this phenomenon from a macro-economic perspective, focusing on technology diffusion; they assume that if the minimum levels of human capital were present, FDI would have complimentary effects on domestic businesses. However, as Moran (2011, p.4) points out, establishing whether or not FDI makes a positive contribution to developm...
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...n of forces such as technology spillover. Reaching the critical mass of productive resources, entrepreneurial capabilities and production linkages which will support technology spillover (i.e. from MNCs to local enterprises) is something which national governments can encourage as a precondition of successful FDI. However, this in itself cannot succeed if the FDI in question only allocates capital to discrete enclaves of economic activity, as typically occurs in the energy sector. Catalysing enterprise remains a notoriously difficult challenge for governments (of developed, developing and the least developed nations), and one where the misallocation of capital is fairly likely. To this may be added the problem of significant deficiencies in the kinds of data which both national governments and NGOs such as UNCTAD need in order to anlayse the situation accurately.
C/E/110. FDI in emerging economies: the case of EECThe paper discusses the importance of inbound FDI for emerging economies. Among the considered benefits are economic growth, the growth of internal market, technological sipll -overs and access to cheap managerial know-how. The paper also considers the motivational forces that push and pull investors to stream their capitals into particular destinations and business areas.
We all know that the foreign investment is a necessary part of global expansion. Many developed countries prefer to invest developing countries. For instance, the US has invested much more fund in China. Since the initiation of its market reforms in the 1980’s. China has been a preeminent recipient of foreign direct investment (FDI). Until 2011, there is over $1.2 trillion have been invest in China as foreign direct investment, it made Chinese industries has been transformation, and contributed enormously to the nation’s industrial output. In addition, the more foreign manufactures, the more Chinese subsidiaries have dominated (Wei, Xiao & Yuan, 2014).
OECD Publication. 2002. Foreign Direct Investment for Development. Available at: http://www.oecd.org/investment/investmentfordevelopment/1959815.pdf [Accessed 4 March 2014].
Moran, T. (2005). How does FDI affect host country development? Using industry case studies to make reliable generalizations. Does foreign direct investment promote development, pp.281--313.
Irish economy succeeds as one of the most competitive market in global economies. Within combination of factors, Ireland’s development transformed the country into an attractive investment destination. Therefore, this essay will determine components involved that affect in Ireland’s growth and provide its different dimensions including political, economic, socio-cultural, technological, environmental and legal system (PESTEL) which are integrated with control, risks, costs and benefits as the country’s attractiveness for Foreign Direct Investment (FDI).
By definition foreign direct investment is the acquisition of tangible assets such as machinery, land and factories; this type of investment are often between two companies- usually multinationals from different countries. FDI is one of the benefits of globalisation as it has a direct impact on aggregate demand having a follow on effect on technology, job opportunities and increased intellectual property owned by countries. In this essay I will discuss some of the factors that affect a country’s disposition to gaining foreign direct investment.
Woodward, D. (2001). The next crisis?: Direct and equity investment in developing countries. London: Zed Books.
Furthermore, the relative importance of FDI determinants may change over time, for instance due to globalization. Factors that have been brought out as determinants of FDI in developing countries include political and macroeconomic stability, infrastructure quality, governance, regulatory environment openness to trade and investment promotion strategies (UNCTAD, 1998). However, it is important to note that even though these factors have been empirically proven to be FDI determinants, some determinants may apply to some regions but not others. For instance, on average, countries in Sub-Sahara Africa (SSA) receive less FDI than other regions by virtue of their geographical location (Asiedu, 2002). However, it is important to note that even when factors apply to a particular region, they may not be applicable to a specific country within that
In recent economic climate the link between technology transfers and Foreign Direct Investment seems to be essential for the Multinational Corporations. The main objective of MNCs is to maximize its profits. This requires them to produce the goods and services at the lowest possible cost (fixed and variable) by exploiting the resources of the developing countries apart from their home country (Pool and Stamos 1990). The channels of international technology transfer and their importance of growth have been studies extensively in 1990s. The study identifies three principal channels of international technology spillovers. The first is the direct transfer of technology via international licensing agreement (Eaton and Kortum 1996) on the contrary this source is considered less prominent as most valuable technologies are not available on license (World Investment Report 2000). The second is FDI from developed countries to developing countries as it is considered the cheapest and most reliable technique as a spillover (Blomström and Kokko 1997). The third is technology transfer through international trade where import and export of intermediate goods and capital products are exchanged (Markusen 1989, Clerides, Lach and Tybout 1997). On the other hand, it is seen that MNCs do not encourage spillovers due to (a) transmission of technology to their subsidiaries abroad. (b) Technologies that does not support the host country’s environment. (c) Maintain a control over the technology by reducing the spillovers and encouraging import. (d) Maintaining advanced technology than developing countries through Intellectual Property Rights (Aitken and Harrison et al. 1999). As an emerging economy, India has a huge presence of multinational corporations...
Capitalising on this FDI through linkages and spillovers has also being a significant topic of literature on investment in India. A common point on the studies of spillovers in Indian industry is that technology transfer and spillovers from FDI heavily depend on the absorptive capacity of the domestic firms, particularly the R&D efforts.
Figure 1 shows the recent trends in FDI inflows of some developing countries. According to the UNCTAD report of 2011 China has the highest FDI inflows among all the developing countries like Hong Kong, Russia, Singapore, Brazil and India; because China has introduced FDI over 20 years ago and has progressively pursued foreign investment while adjusting its FDI policies. Since 1993, China has attracted the largest amount of FDI of all developing countries while increasing its levels of both exports and technological advancement
“…increasing international trade and financial flows since the Second World War have fostered sustained economic growth over the long term in the world’s high-income states. Some with idle incomes have prospered as well, but low-income economies generally have not made significant gains. The growing world economy has not produced balanced, healthy economic growth in the poorer states. Instead, the cycle of underdevelopment more aptly describes their plight. In the context of weak economies, the negative effects of international trade and foreign investments have been devastating. Issues of trade and currency values preoccupy the economic policies of states with low-income economies even more than those with high incomes because the downturns are far more debilitating.1”
...liberalisations have had adverse consequences for some – including the poorest people – but should we automatically condemn trade initiatives because it means that one person loses or is pushed into poverty? The identification of hardship arising from a generally desirable policy reform should stimulate the search for complementary policies to minimise the adverse consequences and reduce the hurt that they unintentionally cause (Winters, 2002). ‘No country has successfully developed its economy by turning its back on international trade and long-term foreign investment’; although trade alone may not offer a solution for poverty reduction, the OECD and DFID have recently published reports identifying that combining aid and trade initiatives and encouraging the integration of trade and aid could progressively and sustainably alleviate poverty (OEDC, 2009; DFID, 2005).
Globalization, love it or hate it, but you can’t escape it. Globalization may be regarded as beneficial from an economic and business point of view, but however cannot be perceived the ditto when examined from the social sciences and humanities side of it. Globalization can be argued as a tool for economic growth, advancement and prosperity through co-operation between the developed and developing countries. The pro-globalization critics argue that the benefits that globalization brings to developing nations surpasses or outcasts the negative impacts caused by globalization and may even go a step further to state that it is the only source of hope for developing nations to prosper and stand out. However, the real question to be asked is as to what extent are the positives argued upon without taking into account the negative aspects of globalization towards developing countries. Moreover, how many developing countries out of many are exactly benefiting or even prospering from globalization is another question to consider. Therefore, my paper will dispute that indeed growth and advancement provided by globalization to developing countries is beneficial in short-term, but in the long-run, it will only bring upon negative impacts and challenges due to the obstacles involved such as exploitation of labour and resources, higher increase in poverty, and effects of multi-national corporations on local businesses and the economy, and to an extent the effects on the developing country itself.
... to the country and bring with it the advantages of advanced technology, management practices and assured markets. In due course there is a technology transfer as the local workforce gains knowledge of the manufacturing processes and management practices. The value added in these industries is a contribution to GDP and foreign exchange earnings. Therefore FDI contributes to foreign exchange earnings, employment creation and increases in incomes, especially of skilled and semi-skilled workers in these industries