In fact, governments will regularly present motivators to organisations as form of exclusions, sponsorships and duties to draw in interest in these nations. This FDI have its own benefits and disadvantage for the developing nation (Cavusgil, Knight, et al, 2014). Benefits of FDI in Developing Nation Financial growth in developing nation Through FDI developing nation can encourage economic development that is required by the country through making more favorable situation for its people as well as give benefits to industries within country (Kinda, 2010). Trouble-Free Global Trade Normally, a nation has its own import levy, and due to this trading is difficult. Likewise, there are businesses that commonly require their vicinity in global markets and to guarantee deals targets are met entirely (Kok, R. and Acikgoz Ersoy, 2009).
FDI produces externalities in the form of technology transfer and spillovers (Carkovic and Levine, 2002). Certainly, by bringing new knowledge and investments in physical infrastructure like roads and factories, foreign investors may help to reduce what Romer (1993) referred to as “idea gaps” and object gaps” between developed and developing countries. From this perspective, FDI may boost the productivity of all firms and not just those receiving FDI. In addition, FDI can improve overall growth by promoting competition in the domestic input market and hence force local firms
They found that FDI had positive impacts on host countries’ economic growth in situations where it came with technology and knowledge transfers. Again, involving 25 Central and Eastern European and former Soviet Union transition economies for period 1990-1998, Campos and Kinoshita (2002) found a positive impact of FDI on economic growth in their study. Very Similar to Campos and Kinoshita’s (2002) finding, Calvo and Sanchez-Robles (2003) found a positive effect of FDI on growth in 18 Latin America countries employing the interplay between Economic Freedom, growth and FDI using panel data analysis. These results not different from Sub-Saharan Africa (SSA) countries, after engaging 42 Sub-Saharan Africa (SSA) countries from 1990 to 2003 in a study of domestic led growth using OLS and fixed effect estimations, Adams (2009) found that domestic investment positively and significantly affects growth in both OLS and fixed effect estimations, and further asserted that FDI has a positive and significant impact on growth in OLS estimation only. Even though, he further revealed that, FDI initially has a crowding effect on domestic investment but the effect evolves and becomes positive over time.
This question has been examined widely and explicitly by many researchers around the world. Financial system development causes economic growth follows the supply–leading hypothesis. A country where financial institutions are not facilitating financial activities in the domestic and international economy may have to face many problems, and that ultimately affects the economic development of the country. Efficient financial system helps a country to achieve the following objectives: • Transfer of financial resources: Obtaining funds from the surplus holders such as household individuals, business firms, public/private sector, government etc. is an important role played by financial
To propose policies, which could be implemented by the government to attract more FDI. 1.5 Significance of the Study Given the immense benefits that the country can get from FDI inflows, this study aimed to investigate the motives of foreign direct investment, mainly in Tanzania because in this century, FDI is increasingly becoming an important economic and development tool globally and many poor countries, including Tanzania are trying much to set attractive environment to attract more FDIs in order to receive potential positive impacts that accompany such investment schemes. Moreover, FDI is the fueling element for any developing nation in terms of Investment and Finance portfolios. Every country for their growth would require available funds and investment to flow into the country. Since FDI is becoming an important tool for inflow of investment for a country, therefore, it is better to identify the potential economic sectors that can lead to rapid economic transformation and stability by directing the reasonable and adequate amount of investment funds especially that comes in the form of
One of the most striking developments during the last two decades is the spectacular growth of FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 around the world makes FDI an important and vital component of development strategy in both developed and developing nations and policies are designed in order to stimulate inward flows. In fact, FDI provides a win – win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because both benefit a lot from such type of investment. The ‘home’ countries want to take the advantage of the vast markets opened by industrial growth.
The role of FDI in recipient countries is suggested by several empirical studies as an important source of capital. Chowdhury and Mavrotas (2005), explain that FDI complements domestic investments, improves human capital, increases the level of technology, and stimulates overall economic growth in the host countries. However, some studies carried out at the level of firms such as that by Carkovic and Levine (2005), and that by Gorg and Greenway (2004), do not support the view that FDI plays a positive role by boosting growth in the host
Levchenko and Quy-Toan Do through their paper “Comparative advantage, demand for external finance and financial development” examine the inverse relationship between comparative advantage and financial development. They illustrates how financial development is influenced by comparative advantage, by using a model in which a country’s financial development is a result of the productive structure of the economy. Their main idea is that financial development is not endogenous and therefore can not be considered an endowment of which a country is provided with. The underlying concept of this paper is that comparative advantage determines the production pattern and therefore the external financing needs. They used a model in which there are two sectors: one is financial dependent and the other one is not.
Friedman has pointed the main advantages of Globalization to be is reduction of tension and increase of dependence between economies. Well this book has been one of the best books published in the economics department and had been sold like hot pancakes but it also has taken a lot of criticism from various renowned economist around the
Concepts and theories of FDI Foreign direct investment can be defined in two perspectives: microeconomic and macroeconomic. From microeconomic perspective, foreign direct investment can be defined as investment undertaken by a firm resident of one economy in a company resident in another economy,