Foreign Direct Investment and Its Impact on Economy and Ecological Issues Introduction Foreign direct investment has been an area of great debate and concern, particularly for developing countries, as it has been regarded as one of the key drivers in assisting a developing economy…
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In addition to this, the review of this impact on economic state of affairs in developing countries also considers the negative and positive impacts of foreign direct investment. Apart from this, the report also discusses how foreign direct investment influences ecological and environmental issues and takes into consideration the particular kind(s) of foreign direct investment which gives rise to such ecological and environmental issues. Before going into details of these issues, it is pertinent to understand what foreign direct investment means (Fedderke and Romm; Chakraborty and Nunnenkamp). Foreign Direct Investment Foreign direct investment refers to the investment or investments made by a corporate entity or investment institution, which operates in one country, in another corporate entity or investment institution which operates or is based in another country. In other words, foreign direct investment is an investment which comes in a country from another country directly. It is pertinent to distinguish between foreign direct investment and those investments which are indirect, as for instance, investments made by corporate entities from foreign countries in the equity of corporate entity or entities operating in the country. ...
oreign direct investment has been regarded by a number of researchers in the past as having a positive impact on the economic development of countries, where such investment takes place. An instant evidence in this regard can be put forward as an example of Chinese economy; China has been reported by the United Nations as the largest receiver of foreign direct investment in the first 6 months period of previous year 2012. The total amount of foreign direct investment received by China in initial six months of year 2012 was $ 59.1 billion, which surpassed foreign direct investment received by United States in the same period by $ 1.7 billion. This information can be directly related with the unmatched economic development which has taken place in the past few decades in China (Reuters). Since after the end of World War 2, foreign direct investment has played an important role in generating significant amounts of financial support for the developing countries. However, the flow of foreign direct investment halted after 1970 as there was an increase in the flow of investment from foreign countries in developing countries and the financial institutions particularly commercial lending institutions found their role as diminishing. However, after certain regulatory measures were taken by the bodies and respective authorities in the developing world, foreign direct investment was again allowed to gain momentum in the mid of 90s (Vo). Upon reviewing the theoretical propositions related to the impact of foreign direct investment on economic growth, it is found that there are differing views in this respect. According to the neo-liberal school of thought, foreign direct investment has a positive and direct relation with the economic development of a region. In light of this
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FDI can also be defined as an investment of a company in a foreign country by building a factory within the host country. It is through a company’s direct investment in machinery, building and equipment in another country that foreign direct investment is made possible.
Inward FDI increased from 9.6% of GDP in 1990 to 26.7% in 2006. (Woodward, 2011). There has also been a recent flow of FDI towards developing economies and this has had a plethora of effects, both for home and host countries. (Raj and Sager, 2005). Foreign Direct Investment has over the last three decades aroused conflicting responses from the first and third world.
The closer linkage between and among global powers has precipitated more interdependence and better business opportunities among countries, but when economic crises strike more seriously than expected countries suffer economic losses, which sometimes cannot be solved by the International Financial Institutions (IFIs).
The growth experienced by many countries in Asia Pacific region provide an ample empirical evidence as to the effectiveness and impact of foreign direct investment on economic growth.
Foreign Direct Investment provide many benefits such as transfer of capital and technology to the country where the intended investment is made besides stimulating domestic growth as well as providing an opportunity for implementing best practices.
Some of these countries became full European Union (EU) members in May 2004. They also experienced a significant increase in foreign direct investment (FDI). As a consequence, the ratio of inward FDI stock to the 12 CEE countries studied here in total world inward FDI stock increased more than three-fold, from 0.81% in 1994 to 2.89% in 2004.
(Wikipedia, 2006). After the 1960's, foreign direct investments (FDI) have increased at a steady rate, with FDI stocks making up twenty percent of the world's Gross Domestic Product (GDP). Currently, China leads the world in foreign direct investments.
The author states that a multinational firm in a developed country may face higher labor costs and higher production costs when locating its subsidiaries in its own home country, while a shift overseas may involve a larger initial investment but is economically beneficial in the long run because the margin of profits are higher.
The human resources of the countries were more educated and this developed the economy of the countries. The economy of the countries depended heavily on the exports and the FDI led to the development of the exports of the countries.
rategies that enable entities to diversify its assets and risk across diverse countries by engaging in contractual agreements with multiple potential partners. Companies may find it advantageous by producing in foreign countries compared to exporting to those countries based on
The author should have included a discussion on the core objectives of financial reforms. More credits to private SMEs (small and medium enterprises) are a sign of effective financial intermediation (Rajan 65). On the
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