Determinants of Foreign Direct Investment - Research Proposal Example

Determinants of foreign direct investment: A comparative study of the aspects that have a significant impact on FDI inflow in India and China. Table of Content Title 3 Key words 3 Aim of the research 3 Background 3 Research Questions 4 Research Design and Data Collection Methodology 5 Methodology rationale 5 Resources and Planning 6 Ethics 7 Reference List 8 Title Determinants of foreign direct investment: A comparative study of the aspects that have a significant impact on FDI inflow in India and China. Key words FDI, International trade, Per-Capita GDP, interest rate differential, Foreign exchange reserves, market size. Aim of the research To determine whether the Financial System efficiency has affected the growth impact of FDI in India and China. To analyse the distribution of FDI across India and China. Background Researcher proposes a financial model in order to deeply understand the inter-relationship between financial markets and the FDI inflow (Wei, 2005). The financial markets are considered as efficient if the credits are easily available to the entrepreneurs. This stimulates the entrepreneurs to take more benefits from FDI (Buckley, et al., 2007). However, inefficient financial market fails to provide required credit to the potential entrepreneurs. According to Buckley, et al (2007), the effects of foreign direct investment can be quantified through constructs. The first construct considers an important indicator that is the interest rate differentials. It has been studied that a low interest rate differential indicates a high efficiency (Eichengreen and Tong, 2007). Although the researcher says that interest rate differential can be used as an indicator to determine efficiency, it is centrally controlled in India as well as China (Buckley, et al., 2007). Also, a study revealed that interest rate differential does not prove to be a good indicator in China as the Chinese economy is a free market economy (Eichengreen and Tong, 2007). Secondly, providing loans to different enterprises have different impacts on FDI benefits in China. Private enterprises are dynamic in nature and are expected to be highly beneficial from FDI. Despite rapid growth, the financial system of both India and China suffers from a problem of misallocation of credit (Eichengreen and Tong, 2007). There are other determinants of FDI like the market size which is measured in terms of GDP that can act as a key determinant to FDI. Market based FDI has an aim to explore new markets and supply goods and services to these new markets (Buckley, et al., 2007). Inflation rate can act as another indicator and the changes in inflation rate of the domestic and foreign country affects the decision of the multinational companies to invest. However, the two developing countries are trying to open up to foreign direct investment as they find it beneficial to develop their economy (Buckley, et al., 2007). Researcher says that FDI inflows have been lower in India as compared to China, and the policy instruments in India needs to be evaluated in order to attract FDI (Buckley, et al., 2007). Research Questions What is the impact of inflow of FDI in the Financial Market of India and China? Has the countries been beneficial from FDI inflow? What are the strategies taken by the countries to attract FDI within the country? How far the determinants of FDI are beneficial to attract inflow of FDI within the countries? Research Design and Data Collection Methodology The researcher is expected to undergo this research on the impact of inflow in foreign direct investment on the countries like India and China through an appropriate methodology (Mukherji and Albon, 2009). The research is basically expected to be carried out through secondary data collected from the authentic websites like World Bank, OECD (Saunders, Lewis and Thornhil, 2009). The data on various determinants of FDI is to be collected over a period of about ten years and the analysis is to be carried out. The data on various determinants of FDI like the GDP of both India and China, the inflation rates and the interest rate differentials of both the countries are to be collected from authentic sources and the analysis is to be done by running a regression considering the dependent and independent variables (Bogdan and Biklen, 1998). Methodology rationale The research is to be carried out by collecting quantitative approach and the data that is collected from the authentic journals. A regression analysis is conducted using the accumulated data. The dependent variable for this regression is the foreign direct investment and the independent variables for this regression are the determinants of FDI such as the interest rate differentials, market size, per-capita GDP over a period of ten years (Somekh and Lewin, 2004). The correlation among the dependent and the independent variables are to be analysed and the summary output is to be determined (Rothwell, 2005). The regression output determines the presence of any strong correlation among the variables. The determinants of FDI would indicate the impact of FDI inflow over the countries (Klink and Smith, 2001). If there is a impact of FDI inflow, the researcher can determine the various strategies that the countries have applied to attract FDI (Guala, 2003). However, if the FDI is low then the researcher can analyse the reasons behind the low inflow and suggest ways that the country can undertake in order to have high FDI inflow within the economy. Resources and Planning The quantitative secondary data is to be collected from the authentic websites and often the researcher finds that accessing from these websites is chargeable (Guala, 2003). Hence, the researcher before conducting the research must authorise himself to all the authentic websites and the journal databases. Gantt chart No cost is involved in this research because the research is quantitative and it does not require the researcher to visit places to collect data or prepare questionnaires. Ethics While conducting the research, the researcher must be aware of the ethical issues that need to be taken care off. The data needs to be collected from the relevant sources. The data collected by the researcher must be kept confidential without sharing it with someone else (Klink and Smith, 2001). It must be from authentic sources without fabricating the data. The data must not be copied from any other research paper. The researcher collecting the data must have an authorisation in order to access the relevant website (Klink and Smith, 2001). Reference List Bogdan, R. and Biklen, S. K., 1998. Qualitative Research in Education: An Introduction to Theory and Methods. Needham Heights: Allyn & Bacon. Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H. and Zheng, P., 2007. The determinants of Chinese outward foreign direct investment. Journal of international business studies, 38(4), pp. 499-518. Eichengreen, B. and Tong, H., 2007. Is Chinas FDI coming at the expense of other countries? Journal of the Japanese and International Economies, 21(2), pp. 153-172. Guala, F., 2003. Experimental localism and external validity. Philosophy of science, 70(5), pp. 1195-1205. Klink, R. R. and Smith, D. C., 2001. Threats to the external validity of brand extension research. Journal of marketing research, 38(3), pp. 326-335. Mukherji, P. and Albon, D., 2009. Research Methods in Early Childhood: An Introductory Guide. London: SAGE. Rothwell, P. M., 2005. External validity of randomised controlled trials: to whom do the results of this trial apply? The Lancet, 365(9453), pp. 82-93. Saunders, M., Lewis, P. and Thornhil, A., 2009. Research Methods for Business Students. 3rd ed. New Jersey: Pearson Education. Somekh, B. and Lewin, C., 2004. Research Methods in the Social Sciences. California: SAGE. Wei, W., 2005. China and India: Any difference in their FDI performances? Journal of Asian Economics, 16(4), pp. 719-736. Read More