Direct Impact of Fdi

In: Other Topics

Submitted By ankitaagrawallko
Words 299
Pages 2
FDls comprise inflow of productive resources, such as, capital and foreign exchange are accompanied by flow of entrepreneurial and managerial skills and technology.
FDIs complement the domestic savings in financing the capital formation in the host country.
FDIs contribute to the generation of output and employment.
The foreign exchange inflow augments the supply of foreign exchange, which is often scarce in the developing countries.
In most cases, however, the project being set up with FDI is dependent upon imported plant and machinery, and technology. The foreign exchange -inflow takes care of these import requirements, partially or fully.

The direct cost of FDI to the host country comprises remittances made on account of dividends on the equity held abroad, interest on loans or suppliers' credits extended by the foreign investors, royalties and technical fees, for transfer of technology and other services provided by the foreign partner.
Unlike foreign borrowings, servicing remittances, viz., dividends in the case of FDI begin after the project starts making profits.
However, the servicing burden of FDI builds up very fast, and consumes considerable foreign exchange resources of the host country.
Further, these remittances have the tendency to grow over time as the enterprise consolidates and prospers.
Thus, the direct impact of FDIs on the host country includes both positive and negative aspects.
The favourable impact is by way of generation of output and employment by complementing the domestic savings and bringing in the much-needed entrepreneurial skills and foreign exchange resources for the developing countries.
The adverse impact is on account of growing remittances of dividends, royalties and technical fees in the foreign exchange, which affect the balance of payments.
It has been contended, however, that the direct remittances…...

Similar Documents

Fdi Foreign Direct Investment

...individually or submitted as a group paper (no more than 2 contributors per project) Length: 2000 words for an individual submission and 3000 for a group submission (the word count excludes appendices and bibliography). The word count should appear at the end of the paper. An abstract of maximum 100 words required. Please pay attention to the learning outcomes (stated in your programme outline) in preparation for your academic paper. Marking criteria (see Grade Descriptors below) Select ONE issue from the following topics: 1. Foreign Direct Investment There are several theories that seek to explain why FDI takes place. These theories try to explain why firms go to the trouble of acquiring or establishing operations abroad. Such theories includes; Dunning’s Eclectic Paradigm, Internalisation theory and Knickerbocker’s Model to name a few. Your academic paper should apply such theories to illustrate and evaluate the rationale for foreign direct investment for a leading player in a selected industry. 2. Strategy and Organisation of MNEs There are several theoretical frameworks that seek to provide an understanding of the strategy and organisational structure of MNEs (for example, contingency theory or business network theory). Drawing upon a theoretical framework that relates to issues of strategy and structural fit, select an MNE that is a leader in its industry, and analyse and discuss how changes in strategy and organisational structure have occurred in......

Words: 1117 - Pages: 5

Impacts of Fdi to Developing Countries

...Introduction Foreign Direct Investments (FDIs) have been found to be important aspects of economic development of host countries, and crucial, in building technological capabilities of local companies in developing countries. It is a channel for international diffusion of technology, having the potential to transfer technological, organizational and managerial practices to developing countries, which may, in the long run, lead to higher technological capabilities, and innovation, resulting in economic growth in these countries. For Tanzania specifically, FDI is a type of investment which is relatively infant as the government had opted for a socialist path of economic development from 1967 to around mid 1980s, following the Arusha Declaration. In mid 1980s, the government initiated and implemented deliberate economic liberalization policies. These resulted into the rise of FDI in Tanzania. For instance, FDI inflows increased from USD 2,418.7 million in 1999 to USD 3,776.6 million in 2001. Such investments were concentrated in the sectors of manufacturing (33.4%), mining and quarrying (28%) as well as agricultural (6.7%) (TIC, BoT and NBS, 2004: 23-24)4. 2.2 Foreign Direct Investment (FDI): Definition and Characteristics 2.2.1 Defining FDI Several FDI definitions have been given in the literature and these are more or less similar. A more representative definition of FDI is that by Rutherford (1992: 178; 1995: 178-179) who defines FDI as business investment in......

Words: 9368 - Pages: 38

Fdi in Retail India: Impact on Farmers, Consumers and Industry

...FDI in Retail India: Impact on Farmers, Consumers and Industry Nilesh Kate, Research Scholar Sinhgad Institute of Management and Computer Application, Pune nileshkate503@gmail.com 9096714133 ****************************************************************************** Abstract: The retail sector in India is expanding and modernizing rapidly in line with India's economic growth. It acts as a major catalyst in the development of a country through up-gradation of technology, managerial skills and capabilities in various sectors. Rise in purchasing power, growing consumerism and brand proliferation has led to retail modernization in India. The growing Indian market has attracted a number of foreign retailers and domestic corporate to invest in this sector. FDI in the retail can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain and benefit consumers and suppliers (farmers). The overall retail market (organized and unorganized) is expected to grow at a compounded rate of 15% over the next 5 years from INR 23 trillion in 2011-12 to INR 47 trillion in 2016-17. Rising incomes will be the primary driver of this growth. Favorable demographics, increasing urbanization and nuclearisation of families are other factors which will drive retail consumption in India. Organized retail, which constituted a low 7% of total retail in 2011-12, is estimated to grow at a CAGR of 24% and attain a 10.2% share of total retail......

Words: 325 - Pages: 2

An Evaluation and Forecast of the Impact of Fdi in Nigeria's Agricultural Sector in a Var Enviroment

...iiste.org An Evaluation and Forecast of the Impact of Foreign Direct Investment in Nigeria’s Agriculture Sector in A VAR Environment Ayodeji Adetunji Idowu* Liu Ying Huazhong Agricultural University, No.1, Shizishan Street, Hongshan District, Wuhan, Hubei Province · 430070 · P.R. China * E-mail of the corresponding author: ayodeji.idowu@hotmail.com The research is financed by project (NCET-12-0868) New Century Excellent Talents and Project (2013PY017). Abstract This study evaluated and forecasted the impact of FDI in the agricultural sector from 1980-2007, specifically its impact on agricultural output and labor in a Vector Auto Regression (VAR) environment. Data used in this study were sourced from Central Bank of Nigeria (CBN) statistical bulletin (2009). Results from the analysis revealed that FDI in the period under review had no significant impact on agricultural output. In addition, results of the forecast estimates showed that the current volume of FDI would not significantly affect agricultural output but will have significant positive impact on labor (employment generation). This study recommended for increase in the volume of FDI and advised government and other stakeholders to seek FDI that will improve existing or introduce new technology in the agricultural sector and enhance domestic capacity or domestic investment, even if the opportunity cost of a reduction in labor may have to be paid. Keywords: Agriculture; FDI; Nigeria; SAP; VAR. 1. Introduction......

Words: 6791 - Pages: 28

Impact of Fdi on Exports

...Table of Contents INTRODUCTION 2 LITERATURE REVIEW 3 FOREIGN DIRECT INVESTMENT 5 MAJOR IMPACTS OF FDI 8 EXPORTS 8 TREND IN EXPORT IN INDIA 9 MAJOR FACTORS THAT AFFECT EXPORTS 10 EXPORT TRENDS AND THE WAY AHEAD 12 IMPACT OF FDI ON EXPORT 12 HOW FDI DRIVES EXPORT 12 IMPACT ON SERVICE INDUSTRY 13 METHEDOLOGY 14 PERIOD OF STUDY 14 SOURCES OF DATA 14 HYPOTHESIS 14 RESULT 15 ANALYSIS 16 IMPLICATION 16 CONCLUSION 16 REFERENCES 18 EXHIBITS 20 FIGURES 23 INTRODUCTION Foreign direct investment is an important part of the economy of every country.It helps expedite the globalisation process. Firms across the world interact with other firms situated in different countries. This results in mutual growth of firms and states. Over the years FDI as a percentage of GDP of world has increased significantly. In 1980 the total stock of FDI equalled only 6.6 per cent of world gross domestic product, while in 2003 the share had increased to close to 23 per cent. This implies that the world economy is getting increasingly interconnected resulting into the flow of goods and capital into developing nations. India has seen tremendous growth in the FDI inflow over the past two decades. By 1997 India became the ninth largest recipient of such investment among the developing economies. Flow of capital and goods has impacted various macroeconomic variables of the economy. Export is one of the variables that gets affected due to the increase in FDI.It has......

Words: 5867 - Pages: 24

The Impact of Foreign Direct Investment on Economic Growth in Nigeria

...INTERNATIONAL ECONOMICS THEMES AND ISSUES MMN222154-13- AB THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA BY AZUMONYE M. CHUKWUEMEKE S1344407 INTRODUCTION Over the years, the debate on the role of foreign direct investment (FDI) as a factor that induces economic growth has received the attention of policy makers, researchers and international organizations (Tumala et al, 2011). There is no denying that most countries strive to attract foreign direct investment (FD1) because of its putative advantages as a tool of economic development. Therefore, this essay seeks to ascertain the extent at which growth in foreign direct investments (FDIs) influences economic growth in Nigeria in the long-run and investigated the empirical relationship between FDI and privatization. Nigeria, after independence began with an economy that was mostly driven by the public sector. According to Tumala et al (2007), Nigerian Enterprises Promotion Decree (NEPD) of 1972 imposed several restrictions on FDI entry, thereby earning the tag „the indigenization policy‟. It reserved 22 business activities exclusively for Nigerians, including advertising, gaming, electronics manufacturing, basic manufacturing, road transport, bus and taxi services, the media and retailing and personal services. Foreign investment was permitted up to 60 per cent ownership and provided that the proposed enterprise had, based on 1972 data, share capital of N200, 000 ($300,000) or......

Words: 3070 - Pages: 13

Negative Impact of Fdi

...I) NEGATIVE IMPACT 1. Exploit the workforce that is available in host country. Take undue advantage of low cost labors , unskilled labors…, make use of probation to consistently change labors without training or equipping them with experience, skill and qualification Because FDI enterprises in Vietnam are mainly conducted labor-intensive processes such as machining and assembly. Even the leading technology companies such as Intel Inside Sam Sung that have production facilities in Vietnam mainly produced components, as inputs to the process of creating a product in another country. Besides, a number of investment projects of China, one of the major partners of Vietnam, often use Chinese labor instead of hiring workers from VN 2. There is little technology transfer and management skill transfer into Viet Nam. Even Viet Nam becomes an industrial garbage after adopting out of date technologies. Investors tend to keep their “know- how” in secret. Channel 1: At a conference to summarize 25 years of new FDI was organized, Deputy Minister of Planning and Investment said Dao Quang Thu, 80% FDI technology used currently in Viet Nam is average, 5 6 % used is high-tech, 14% low and backward, there are individual cases using outdated technology. Technology transfer is mainly done horizontally - between business enterprises, with little change in the level and technological capacity. Despite the fact that there would be no corporations, they now carry the No. 1 technology,......

Words: 2763 - Pages: 12

Impacts of Fdi on Idustrial Dwvwlopment of Bd

...1.0 Introduction FDI refers to is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in the country. Foreign Direct Investment which is a passive investment which is passive investment in the securities of another country as stock and bonds. Foreign direct investment occurs when a firm invests directly in facilities to produce and /or market a product in a foreign country.FDI plays a dominant role in the economics of Bangladesh through accelerating Gross Domestic Product(GDP),export and domestic investment followed by overall economic growth. The objective of this term paper is to find out the major effect of FDI on industrial productivity of Bangladesh. Foreign direct investment (FDI) enables a capital poor country like Bangladesh to build up capital, avoid threat to unemployment develop productive capacity. Conventional wisdoms have it that firms with foreign equity tend to be more productive. This could be due to the firm specific tangible assets such as exclusive technology and product designs, or the intangible know-how embodied in foreign equity such as marketing, networking and sourcing. Such assets may be more readily available in big multinational corporations (MNC). As such, being part of MNCs allow the local subsidiaries with foreign equity to gain access to these......

Words: 6167 - Pages: 25

Impacts of Fdi

...IMPACTS OF FOREIGN DIRECT INVESTMENT (FDI) Resource Transfer a) Capital Inflow Multinational companies that are able to do FDI usually have big funds. This might be because big multinational companies have good reputation to get loan from bank, compared to the local companies. With the inflow of capital into the host country, it will help the state to build better infrastructure, develop competitiveness in the industry, and boost the economy. b) Technology Transfer In any nation, the importance of technology is very important as it transfers to the growth of economy. Whenever FDI takes place, technology is transferred from the home country to the host country. It may be in form of machine transfer or knowledge transfer. For example in Malaysia, Proton collaborates with Lotus, and the technology of manufacturing car is transferred although it is not 100%. The vehicle manufacturing technology also help other Malaysian industry like rubber industry in making tires. c) Managerial Skills Transfer Management know-how is required through FDI process gives important benefit to the host county. Local employees hired by MNC are exposed to latest management skills that will improve the efficiency of operations in the host country. When foreign managers leave the firm, the trained local personnel will help to build indigenous firms, causing a beneficial spin-off effect to the host country. Employment Effect FDI brings more beneficial employment prospects to the host......

Words: 544 - Pages: 3

Foreign Direct Investment and Its Impact on Real Estate Development

...investors. Foreign direct investment (FDI) is defined as “an investment in which a firm acquires a substantial controlling interest in a foreign firm (above 10 percent share) or sets up a subsidiary in a foreign country” (Chen, 2000). The International Monetary Fund adds “the investor’s purpose is to have an effective voice in the management of the enterprise”. FDI is not only a financial transaction between two foreign enterprises, in which one company invests in the capital of the other one. This transaction gives to the investor lasting management of the company and a direct control over assets. FDI investors take in whole or in part the control of the management of the firm and its strategy. 1.2 STATEMENT OF PROBLEM In Dunning (1988), the industrial organization hypothesis explains that companies are willing to spend their money in FDI only if advantages arising from intangible assets are large enough to overcome disadvantages of investing in a foreign country. The level of FDI attracted by the country is not encouraging compared with the resource base and potential need (Aseidu, 2003). Therefore, this study focused on the factors that affect Foreign Direct Investment in Real Estate. 1.3 AIM AND OBJECTIVES The aim of the study assessed foreign direct investment and its impact on real estate development. In order to achieve the above aim, the following are the objectives of this study: (1) To identify the factors that affects the foreign direct investment in......

Words: 19536 - Pages: 79

The Impact of Foreign Direct Investment in Mexico

...Working Group on Development and Environment in the Americas Discussion Paper Number 11 The Impact of Foreign Direct Investment in Mexico Enrique Dussel Peters i April 2008 The Working Group on Development and Environment in the Americas, founded in 2004, brings together researchers from several countries in the Americas who have carried out empirical studies of the social and environmental impacts of economic liberalization. The goal of the Working Group Project is to contribute empirical research and policy analysis to the ongoing policy debates on national economic development strategies and international trade. The project also brings more prominently into U.S. policy debates the rich body of research carried out by Latin American experts, as well as their informed perspectives on trade and development policies. Hosted by Tufts' Global Development and Environment Institute, the Working Group Project has four initiatives. The Working Group’s web page is http://ase.tufts.edu/gdae/WGOverview.htm Enrique Dussel Peters did his BA and MA studies in Political Science at the Free University of Berlin (1989) and PhD in Economics at the University of Notre Dame (1996). Since 1993 he has worked as a full time professor at the Graduate School of Economics at Universidad Autónoma Nacional de México (UNAM). He has taught more than 90 courses at the BA, MA and PhD level in Mexico and internationally, and participated in more than 260 national and international seminars and......

Words: 10800 - Pages: 44

Impact of Fdi in Multi-Brand Retailing

...policy particularly with respect to Foreign Direct Investment (FDI) whose role in economic development is acknowledged by policy makers. India cautiously opened up to FDI with the hope that it could act as a catalyst for growth as it is believed to fill up the critical gaps of capital and technology and also be a facilitator for transfer of managerial and technical skills, for employment generation and export promotion. Keeping with the policy of progressive liberalization the Government of India has now initiated a debate of allowing FDI in multi- brand retail. 100% FDI in wholesale cash-and-carry trade was opened in April 2006 followed by further liberalizing by allowing 51% FDI in single-brand retail in 2008. The impact of this has been an FDI flow of Rs. 7799 crore into the retail sector. The issue of FDI in multi- brand retail had been put on the backburner for so long as it had a direct impact on the strong 1.3 crore small retailers in the unorganized sector. The giant multinational retail players are pushing for the opening up of India's retail trade as the growing middle class with rising disposable incomes means huge market potential. Even domestic retailers such as Future Group, Reliance, Birla, etc are lobbying hard for FDI. By initiating the current debate the Government has made its intention of removing multi-brand retail from the 'restricted list' very clear and the need is to safeguard all the stakeholders' interests. FDI in Multi-Brand Retail – A Step......

Words: 3579 - Pages: 15

Impact of Fdi Nad Joint Venture

...“Impact of FDI and Joint Venture on Employment Generation: A Multi-sector Experience of Bangladesh Economy” 1. Md. Nazmul Hasan, Lecturer of Finance and Banking, Daffodil International University, 4/2, Sobhanbag, Prince Plaza, Mirpur Road, Dhanmondi, Dhaka-1207, Bangladesh. (Correspondent Authors). palashdu007@gmail.com. Cell: +88-01915.653068 2. Hussain Ahmed Enamul Huda, Lecturer, Department of Finance, University of Dhaka, Dhaka – 1000, Bangladesh. Haehuda@yahoo.com. Cell: +88-01911.745255. Abstract: Foreign Direct Investment (FDI) is very crucial for the sustainable development of developing countries in general and in specific for LDCs-like Bangladesh. For Bangladesh, inflow of foreign direct investment is the major stimulus for the sturdy and long-standing economic growth which is subject to the improvement of many socio-economic and political factors. As a promising hub for foreign direct investment, Bangladesh has already conquered popularity for its simplistic, liberal and most investments friendly climate throughout the globe. Being an open, flexible and promising destination for foreign direct investment, Bangladesh has been drawing attention of the global investors into a focal investment destination within SouthAsian region. Its investment climate is mostly featured by munificent and alluring packages of incentives to investors. In addition, there is no discrimination between the local and foreign investors in facilitating the incentives they owe from the......

Words: 3910 - Pages: 16

The Effects of Foreign Direct Investment (Fdi) on the Economic Growth of China

...examine the effects of foreign direct investment (FDI) on the economic growth of China. Such growth was achieved through China taking in tremendous amounts in FDI, increasing its productivity, especially in the export manufacturing sector of the economy. This paper provides mounting evidence that China’s growth has been largely fuelled by FDI through capital formation, export promotion, technological and skill transfer, increased tax revenues. Similarly, the creation of a larger middle class, encouragement of economic reforms and increased infrastructure spending has fueled the inflow of FDI into China further increasing the growth of China’s economic growth. FDI plays an extraordinary and growing role in global business. Tuan, C., & Ng, L.F-Y. (2007) pointed that FDI has fuelled economic growth in China by attracting capital investments and creation of employment; increasing manufacturing exports; bringing skilled labor and international brand names and transferring knowledge and technology to local economy. FDI has improved developments in infrastructure and expanded domestic market through job creation. The fixed capital investment in economic growth has been considered one of the basic principles in economic. FDI is of special interest for its supposed positive effects on growth (Qi, 2007). In 1980, the ratio of FDI inflow to China’s Gross Domestic Investment was negligible. It had increased to 7% by 1992, and up again to 36% by 2004 (Rising FDI into China: The......

Words: 1521 - Pages: 7

Foreign Direct Investmeni (Fdi) in Housing Sector in Jordan

...estate market (Hoag, 1980); (Clayton, 1996); (Peek and Rosengren, 2000), long-term maintenance liabilities (Cooke, 2003), and the potential for voids (Notting Hill Housing Trust, 2006); (Smith and. Wakeman, 1984). 1.4.5. Mutual Advantages There are mutual advantages to be gained by both parties in international investment. Because, while the investors have the chance to maximise their profits and extend into new markets (John, 1998); (Deardorff, 2003), the hosts have the chance to take advantage of foreign investors in a number of ways (Spar, 2006); (Moran, 2005). For instance, foreign investment helps to overcome many local economic problems, since an inflow of capital will push an economy forward (Choe, Roehl, and Kumar, 2003). Moreover, FDI multiply job chances (Potter and Gallardo 2007), and lead to the development of other industries relevant to the housing sector (Godwin, 2006); (Goodson, 2006); (Guan, Feng and Zeng, 2001). Moreover, investment in housing leads income to increase and growth levels to rise within the general economy of country itself (Godwin, 2006); (Guan, Feng and Zeng, 2001); (Pugh and Lewin, 1991); (Duca, 2006) 1.5 AIM OF THE STUDY This research aims to investigate how to attract international investment into Jordan's housing sector. To achieve the study aims, the following objectives are developed: 1.6 RESEARCH OBJECTIVES The main objectives of this research are to: • Investigate to what extent Jordan needs new housing; • Understand the......

Words: 26562 - Pages: 107