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The Important Role of Foreign Direct Investment In BRUNEI: Current Status and Future Direction - Research Paper Example

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This paper discusses Foreign Direct Investment to Brunei given the BEDC’s commitment in November 2001. The paper investigates the role of foreign direct investment to the growth of the economy of Brunei by studying the relationship between macroeconomic variables and Foreign Direct Investment…
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The Important Role of Foreign Direct Investment In BRUNEI: Current Status and Future Direction
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Download file to see previous pages As Davies and Ellies (2006) put it tax subsidies are directly contingent on the multinational enterprise (MNE) satisfying various performance (PRs). Multinational enterprises may be allowed tax credits on the condition that they create at least 50 new jobs per year, that they export at least 70% of their output and that they maintain environmental protection and many others.
Brunei, situated on the Northern part of the Borneo Island in Southeast Asia is one of the smallest countries in the Southeast Asian region. It has a land area of 5,765 square kilometers and a population of 340,200 inhabitants as of 2002. (Anaman, 2004: pp 778). Brunei's economy is highly dependent on the export of oil and gas as the main source of revenue. For example, oil and gas revenue contributed an average of about 80.0% and 55.2% in the years 1971 to 1990 and 1991 to 2001 respectively. (Anaman, 2004: pp 778).
According to Anaman (2004), the country took a positive upturn as a result of world market oil price shocks of the early to the middle 1970s and the early 1980s when global market oil prices were at record high levels. As a result, the government established a virtually complete welfare system in the country (Anaman, 2004 Pp 778), (Nohlen et al, 2001: Pp 49) with free education (from primary school to University) and free health care system for all citizens. Following this development, the country was ranked 31st among 175 countries based on the United Nations Development Programme human development index.
Brunei remains the wealthiest country of the 57-member countries of the Organisation of Islamic countries in terms of per capita GDP. It is also the fourth richest country in Asia after Japan, Singapore, and Hong Kong. (Anaman, 2004: pp 778). The Brunei dollar ($B) exchange rate relative to the U.S dollar in May 2004 was US$0.59/$B. The Brunei dollar based on a parity agreement between Singapore and Brunei has also been at parity with the Singapore dollar since the 1960s. (Anaman, 2004: pp 778).
Brunei has been facing economic problems due to a stagnant economy since the mid- 1980s and due to issues related to government budget deficits for the majority of the years since independence in 1984. (Anaman, 2004: pp 778). Real GDP growth rate stood at an annual constant rate of 5,1% between 1971 to 1990 whereas the period 1991 to 2001 witnessed a drop in the GDP annual growth rate to -0.9%.  

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