FDI’s projected role as a diffuser of technology or knowledge implies that it can have a direct effect on growth (Borensztein et al 1998), especially within the framework of endogenous growth theory, which emphasizes the accumulation of knowledge as the driver of long-run economic growth. Kinoshita (1999) explains that the technology diffusion process can take on any of four different forms: the imitation effect, the training effect, the linkages effect, and the competition effect. As firms from developed countries set up subsidiaries or factories in developing countries, these firms might introduce more efficient/advanced technologies to local markets. Through contact in the marketplace, local producers might copy the advanced technologies and practices that are implemented by their foreign-owned counterparts, causing increased production through the use of more efficient technology. This diffusion mechanism is called the imitation
Brigham and Gapensiki (2010) argued bankruptcy costs exist and they increase when equity is traded off for debt. So MM theory may not hold. According to MM the cost of equity rises, as the firm increases its use of debt financing. This implies that the risk of equity is dependent upon the risk of firm operations. MM theories can help firms understand that it is not only the capital structure and dividend policy that matter in firms strengths but other variables should be taken into consideration.
Therefore, with public debt, a country finds a balance between saving and investing, and gets extra investment required for reaching the needed growth stage. Several countries in the developing stage have policies to draw foreign capital from loans and to boost growth. Mohammad and Sabahat (2010) Also, Ahmad (2000) was of the opinion that foreign debt is used to produce a constant growth for the economy which might not have been possible within using the local resources and level of technology existing in the country. Siddiqui and Malik (2001) also attributed the increased resource availability and economic growth in South Asia to foreign borrowing. The reasoning behind public debt is discussed in what is called the debt cycle theory.
The economic data impact on FDI and export on economic growth is Asian developing countries (Pakistan, China, India and Indonesia) needs to be analyzed and evaluated in that scenario. The research identifies that because of low levels of saving and investment of developing countries, the most important effect of FDI is the significant flow of FDI which is creating a market of domestic and international goods being a need of developing countries. The FDI takes various forms and enter into different sectors of an economy. Now this study finds, that the FDI increases the economic growth of developing countries through its investment by Multinational Enterprises (MNEs) are as important determinates as its
They stated that depreciation may lead to cost of imports increase, domestic price level increases, therefore it would expectedly have a negative impact on stock market returns. Similarly, Adjasi & Biekpe (2005) stated that exchange rate depreciation will reduce stock market return. Morley & Pentecost (2000) affirm that stock markets and exchange rates are related, and it is through a common cyclical pattern rather than a common trend. When foreign investors purchase a country’s stock, the capital inflow will results in domestic currency appreciation, while currency depreciation when capital outflow. However, there is a significant long run relationship exists between exchange rate and stock market returns (Muktadir-al-Mukit,
Those firms that have a negative NPV projects face a risk of making financial decision that will misuse their financial resources. This is consistent with the free cash flow theory that illustrates how shareholders welcome payment of the dividends especially when funds under the discretional control of the firm managers decrease. In addition, the theory indicates that value of a given firm is positively related to the payout of dividend in a firm especially when there are poor growth opportunities. Empirical study showcase the that free cash flow would have vital impact on the economic growth of the organisation because it increases the free cash value in which economic value of the organisation increases which indicates economic growth of the organisation. 2.2.
A good amount of studies in the market for corporate control have described that “mergers and acquisitions” (M&A) is an aggressive strategic growth choice to gain ownership and control over the target entity. As Trautwein (1990) mentions that M&A is usually used as a vehicle for growth, cross-border mergers and acquisitions are characterizing strong dedication and to create value from acquiring foreign targets on long-term is on high risk. It is recognized that cross-border mergers and acquisitions expand the knowledge base of the acquirer including new technology and mixture of different ways of managing the resources. To be more exact, cross-border mergers and acquisitions nowadays are used as a progressively common strategy by firms to create
FDI contributes to the integration of the host country into the global economy, particularly through the financial flows received from abroad (OECD, 2002). This relationship is also demonstrated by Mencinger (2003), who provides evidence of a clear link between the increase of FDI and the rapid integration into global trade. This integration generates economic growth which is increased as the country becomes more open (Barry, 2000). The local firms’ integration in the global market is also made by copying and attaining of knowledge held by the multinationals. Multinationals have higher knowledge about internationalization because they have already gone through this process.
Based on his research he found out that the economic impacts of trade facilitation are high, “predicting an increase of US $377 billion globally.” This increase is a result from the trade inflows of manufactured goods throughout the world. Futhermore, his study has proven that a for a country’s can gain micro-economic benefits from trade facilitation as a way of increasing their exports as it will have a direct impact on their foreign direct investment (FDI) and can reduce the vulnerability of
Another study found that a firm’s age sometimes showed a U-shape effect on export performance as it may hamper exporting activities up to a certain point after which it builds a positive impact on export operations (Rodríguez-Pose et al., 2013). In contrast to Ursic and Czinkota’s (1984) findings, Seifert and Ford (1989) found a positive relationship between firm age and export performance. Export Experience Export experience literature refers it as knowledge gained through experience from business operations overseas thus generating opportunities and is a driving force for internationalization of the firm (Johanson and Vahlne, 1990). Barney (1991) experience plays an important role in achieving superior company performance as a means of value building According to (Piercy, 1981) Experience accumulated by firms in their international operations influences their reaction to the opportunities offered by foreign markets. Experience is a mechanism of obtaining information on foreign markets as indirect intelligence.