The title of the article poses a question on whether foreign investments can increase productivity of the local (national) firms. The answer could be in the positive when we realize that the international Inward Foreign Direct Investment (IFDI) has risen from 5% in 1979 to 16% in 1999. To prove this statement, Lipsey, Blomstrom and Romestetter (1998) affirm that “foreign affiliate’s share of world production is now 15% in manufacturing and other tradable”. The article therefore discusses the potential direct investment spillover in the international economy under current globalization that began sweeping the world in the last twenty years or so.
Starting with the importance of FDI, the article is stating that due to the dilemma and policy issues, governments should offer incentives to MNEs to produce locally. Many countries have simplified the laws to attract MNEs. The FDI-packages are valuable, not only financially but also socially by raising productivity and bringing new knowledge. To examine these issues, the writer has conducted an elaborate study ranging from researches and statistics. The article is also meant to answer two empirical questions on whether there are production surpluses from FDI to local companies secondly what is the amount that recipient country should accept to pay in order to increase the attractiveness of FDI
To begin with, let me first define FDI and its growing necessity to the growth in world economy. FDI is the flow investments conducted my various investors mainly form developed countries in the world such as EU, Japan and USA, the goal is to offer funding to enable smaller firms grow and to boost their international sales. In other words FDI is simply investing in a firm that is running business in another country; the investment could be done by private persons or by firms.
Much has been said about the pros and cons of the FDIs, both on the local...