Developing a Quantitative Research Plan - Coursework Example

Foreign direct investment in the host country is made because of many factors which include cheap labor in the country, special facilitation of the government of host country to foreign country such as low tax rate or tax exemption, or the vast business opportunities in the host country. Sometimes FDI is made in a country which is nearby to the sea land or from where foreign companies find near location from its buyer and seller (Atique, Ahmad, and Azhar, 2004). The importance of FDI for host countries is even more than the foreign investors.

It makes an improve balance of payment summary for the host countries. Countries that have higher FDI are always in a fruitful position and their economy boost rapidly. It also reduces the trade barriers between the host country and foreign companies. Furthermore, through FDI the host country not only receives the cash inflow but also new technologies, new innovative procedure and products are transferred. Through FDI, host country also receives their management skills and expertise which help for local domestic companies (Li and Liu, 2005).

Some researchers argues that the impact of FDI on economy growth of the host country depends on the condition of the country, its political and government stability (Freckleton, Wright & Craigwell 2010). While some studies claimed that FDI does not lead to the growth of the host country where there is a lacking of absorbing it (Borensztein et.al., 1998; Hermes and Lensink, 2003). Some studies argue that the important factor of FDI on the economic growth of host country is the employment generation (Hermes and Lensink, 2003).

While some studies claims that technological diffusion is the factor which helps in economic growth (Borensztein, Gregorio, & Lee, 1998). According to (UNCTAD, 1999), FDI helps to increase competition in the local market which makes domestic market more efficient. The study focuses on the impact of foreign direct investment on the economic growth of