Foreign Direct Investment Essay

Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact.

Supporters of Transnational Corporations (TNC) say that their operation in “third world” country, also known as a “developing country”, benefits both the home country (where the TNC is based) and the host country (where they operate). TNCs construct facilities, make infrastructure improvements, and employ local people, all activities that should improve the economy of a host nation. Many host nations hope that there will be a multiplier effect from the direct investment by a transnational corporation, known as foreign direct investment, or FDI. That multiplier is expected to ripple across all other sectors of their economy – benefitting everyone.

Countries would participate in foreign direct investments because it helps in the economic development of the country where the investment is being made. They also engage in FDI to reduce production costs.

FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)

The foreign workers also pay a lot of money to just to acquire the permit to work in the country. Hence the gross domestic would increase and the country would be seen in the international setting as an up-and-coming country (Ghosh, 2001). This can help attract other companies into the country and the country can also be able to easily borrow funds from the international monetary funds (IMF) if needs be. Foreign direct investment (FDI) is a main advantage of globalization affecting the world economy. When a company goes global, it will make

Through FDI, the host countries will know efficient management technique. The best example is Basel II. Most of the banks are opting Basel II for making their financial system more safer.

The other benefit of foreign investment is that it boosts competition in the host economy and, thus, prompts local businesses to seek greater efficiency in their operations. Besides this these multinational firms promote local businesses which supply inputs and or render services needed by them to support their operations. As a result of this, there will be a multiplier effect in terms of creation of employment opportunities.

Foreign Direct Investment refers to the type of investment into a country that is characterized by the inflow of funds from a foreign source that can be in the form of ownership such as stocks, bonds, infrastructural presence, etc. by the element of ‘control’. FDI is defined as the net inflows of investment to acquire a management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.

In recent times, there has been increased attention devoted to the role that foreign direct in-vestment (FDI) could play in ameliorating the general dearth of capital available for investment in most developing countries. Even though FDI is primarily meant to bridge the gap between the desired level of gross national investment and the prevailing amount of domestic savings and in-vestment, it also results in positive externalities that often serve as a catalyst in the overall eco-nomic growth and development of the country that receives it. The inflow of FDI is known to yield indirect benefits, such as enhanced employment opportunities, the improvement of the bal-ance of payments (BOP) account situation due to the increased availability of foreign exchange in an economy, and perhaps, most importantly, the prospect of the transfer of technology, manageri-al skills and other intangible knowledge to the host country which would allow domestic firms to improve their collective profitability and performance (Elijah, 2006).

Foreign direct investment is becoming an increasingly important issue in today’s world, with the increasing globalization of capital markets. Foreign direct investment can occur when companies make investments abroad in multiple ways. Companies can invest in properties, plants and equipment abroad, invest in foreign businesses they already own, or acquire existing business assets of foreign companies. Defining the difference between direct investment and portfolio diversifying investments is an important distinction to make, and often depends on the definition of foreign direct investment that is being used, but generally at least 10% ownership of the equity in the foreign business is required in order for it to be

Economists believe that Foreign Direct Investments is an essential part of economic evolution in every country. There are many academic papers that attempt to assess FDI aspects. Despite many researchers have tried to give an accurate explanation to FDI, there is no comprehensively approved theory. FDI motivations have been mainly researched by John Dunning, Stephen Hymer, Raymond Vernon, etc.

5) FDI also brings revenue to the government of the host country in terms of taxes.

The topic of my dissertation is about the determinants of foreign direct investment (FDI) in developing countries. With the trend of economic integration, FDI has been considered as an important part of boosting the economic development within any country around the world. Foreign direct investments differ entirely from indirect investments such as portfolio management.The direct way of investing in a foreign country can be conducted in a number of ways—either by establishing overseas controlled corporations, or associate company abroad, by obtaining shares of an multinational company, or though a joint venture.

It is real that the globalization rapidly expand through borders and industries, and it has happened because of forgin dircet investment. Foregin direct investment has advan and disadvantages. Foregin direct investment considered as one of the most important major in the business and economicenvironment and it is connected with business enterprise and benefits. This is very helpful because it helps to achieve your business goal in a short amount of time. Around the world, many countries open their borders to foreign investment. The one that makes the investment can be business corporation or individual, and group of companies. FDI leads to increase in job creation and employment.

An FDI may provide some great advantages for the MNE but not for the foreign country where the investment is made. On the other hand, sometimes the deal can work out better for the foreign country depending upon how the investment pans out. Ideally, there should be numerous advantages for both the MNE and the foreign country, which is often a developing country. We'll examine the advantages and disadvantages from both perspectives, starting with the advantages for multinational enterprises (MNES).