Fdi Is Conducive for Economic Growth

Topics: Investment, Foreign direct investment, Development Pages: 2 (419 words) Published: April 13, 2013
FDI is highly benign therefore making it a necessary evil especially for the developing countries thus there is a global race to attract FDI. Foreign Direct Investment (FDI) complements and supplements domestic investments. Domestic companies can be benefited through FDI having access to enhanced supplementary capital, learning global management practices and integrating into global markets. FDI is an important vehicle for technology transfer as well as economic growth. Fast-growing countries like China, India, Singapore and Brazil possess better investment opportunities and this is the reason why they attract more FDI. (Eswar S. Prasad, Raghuram G. Rajan, and Arvind Subramanian) FDI brings in the required capital, technology know-how, managerial practices. (Ramkishen S. Rajan and Lall 2000; OECD 2002: Chapters 1 and 3) To enjoy the fruits of FDI, the host country must possess adequate level of human capital, economic stability and liberalized capital markets.

According to the UNCTAD Report (1999), FDI complements local development by: (a) increasing financial resources for development; (b) boosting export competitiveness; (c) generating employment and strengthening the skills base; (d) protecting the environment and social responsibility; and (e) enhancing technological capabilities (transfer, diffusion and generation of technology). REASONS WHY FDI TAKES PLACE

1) Resource seeking
2) Market seeking
3) Efficiency seeking
4) Strategic asset seeking

A suitable business friendly environment is needed in the host country for FDI to flow in. The host countries need to implement investment promotion policies. Singapore, which is considered a success story as far as FDI attraction is considered, has spent a huge amount on attracting FDI. (Rajan) Investment Promotion Agency (IPA) can be established to assist the flow of FDI.

Administrative procedures- a hindrance to FDI
Administrative procedures are present...
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