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Arguments for and against Foreign Direct Investment In Developing Countries - Essay Example

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This research is being carried out to evaluate and present arguments for and against Foreign Direct Investment (FDI) in developing countries. Depending on the strategy, the government should think of a number of policies that can be used in their local countries…
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Arguments for and against Foreign Direct Investment In Developing Countries
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Arguments for and against Foreign Direct Investment In Developing Countries

Download file to see previous pages... According to the research findings it can therefore be said that foreign direct investment (FDI) is direct venture into business in a country by a company from another country. This can be either by buying a company in the intended country or by increasing operations of an open business in that country. In actual practice, FDI attraction may be different in various countries. In this respect, technology, market access, growth, poverty reduction and the foreign direct investment outcomes of a country are extremely significant. Other aspects such as damages to the environment, regions and local capabilities are considered to be negative in a countries economy. For the last two decades, increased technological and liberalization advances have resulted into increased growth in the flow of FDI. This means that foreign direct investment gained in share of domestic investment and gross domestic product (GDP) in many countries. It is done for numerous reasons that involve taking advantage of low cost wages or for exceptional investment privileges like rewards to obtain a link that is tariff-free towards the countries markets or the regional market through the use of tax holidays granted to the company. Foreign direct investment is the submissiveness in security investments of various countries such that it comes in the form of securities and other investments being contrast with portfolio investments. The national accounts of a country, that relate to the equation of national income (Y=C+I+G+(X-M)) where I is investment plus foreign investment, The inflow minus outflow that amount to Net inflows of investment, is at least 10% or more of voting stash in an enterprise operating in an economy apart from that of the investor. It is the sum of other long-term capital, short-term capital and owners’ capital as frequently shown in the balance of payment. Transfer of technology & expertise, management involvement and joint venture are means used. The FDI may be both inward and outward, resulting in a net inflow that is positive or negative and "stock of foreign direct investment" that sums up the number for a given period. International factor investment is one example of FDI. Perspective FDI is the form of FDI that arises whenever a company ensures that its country-based income is duplicated using the similar stage chain in the hosting country by use of FDI. Podium FDI, and Vertical FDI that arises whenever a firm shifts upstream through FDI and downstream in various chain value through performing activities that adds value in a vertical fashion stage of a host country. The reduction in the international trade is attributed to the horizontal FDI as the most of them is usually move towards the host country while other two types generally act as a stimulus for it. Foreign direct investor gives out the power of voting of an enterprise within an economy by incorporating a wholly owned subsidiary / company anywhere, acquire shares in an associated enterprise, merger or acquire an unrelated enterprise, or participating in an equity joint venture with another financier or enterprise (Borensztein & De Gregorio, 2008). FDI incentives may take the following forms; Low individual income tax & corporation tax rates, tax holidays, preferential tariffs, which could be, a tax on a countries’ exports or imports inside and outside of a country, or a price schedule for services like as train service, buses route, and electricity usage, special economic zones(It involves a geographical region having economic and different laws that encourage the free-market. Export processing zones, bonded warehouses, “Maquiladoras” which is a Mexican name for manufacturing operations within a free trade zone(FTZ), where firms import material and equipment on a duty & tariff- free assembly basis, and manufacturing processing. After this, the assembled export are manufactured, and processed to give out finished products. In other situations, raw materials are send to the origin country. Investment financial subsidies, soft loan or guarantees, free land or subsidies, relocation ...Download file to see next pagesRead More
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