Investment in Emerging Market or the Effects of Foreign Direct Investment in Emerging Market - Dissertation Example

The developing economies comprising of low-income economies (with an annual gross national income per capita of $905 or less) and lower-middle-income economies (income per capita between $906 and $3,595) jointly produce 41% of the world’s output, according to the World Bank Development Indicators 2008 report (Lenartowicz & Balasubramanian, 2009). Moreover, 5 of the 12 largest economies are now in the developing world. China and India’s economies are not expected to grow 22 times their current size by 2050 whereas the US is expected to grow only 2.

5 times approximately. The developing countries constitute more than 80% of the world’s population. The geographical focus of growth has shifted towards the developing economies, which is the reason that multinationals have been trying to develop economies in Asia, Africa, and South America as profit sources. While the MNCs from the developed nations were seeking suitable circumstances for foreign market access, the developing nations also strived to draw the attention of the foreign investors by offering incentives (Michi, Cagatay & Koska, 2004).

This led to serious competition to access the developing nations’ markets and the evaluation was based on costs, internal market, and ownership/location advantages. The developing nations, in turn, expected to make up for the inefficient resources, and also gain knowledge and expertise both on production processes and management techniques. The MNCs have been entering the developing economy through foreign direct investment (FDI). Foreign investment has been defined as the investment outside the investment of the boundary of the investing side’s home country (Michi, Cagatay & Koska, 2004).

FDI suggests a special form of capital flow that is expected to generate tangible assets, provide technology transfer to developing countries. Along with these, it could also carry intangible assets like managerial skills. FDI can also take the form of inter-firm cooperation controlling host country enterprises. Hence FDI includes both the flow of capital as the economic activities carried out in the host country fully or partially controlled by some other country.