VSRD International Journal of Business and Management Research, Vol. 2 No. 11 November 2012 ISSN No. 2231-248X (Online), 2319-2194 (Print) © VSRD International Journals : www.vsrdjournals.com
ROLE OF FDI IN SOCIO-ECONOMIC GROWTH OF DEVELOPING COUNTRIES 1Reema
Sharma*, 2Stuti Priyadarshni Nijhawan and 3Richa Sharma
Professor, Department of Management & Commerce, Swami Vivekanand Subharti University, Meerut, Uttar Pradesh, INDIA. *Corresponding Author : email@example.com
FDI is generally defined as “A form of long term international capital movement, made for the purpose of productive activity and accompanied by the intention of managerial control or participation in the management of foreign firm.” Foreign direct investment (FDI) is prized by developing countries for the bundle of assets that multinational enterprises (MNEs) deploy with their investments. Most of these assets are intangible in nature and are particularly scarce in developing countries. They include technology, management skills, channels for marketing products internationally, product design, quality characteristics, brand names, etc. In evaluating the impact of FDI on development, however, a key question is whether MNEs crowd in domestic investments (as, for example, when their presence stimulates new downstream or upstream investments that would not have taken place in their absence), or whether they have the opposite effect of displacing domestic producers or pre-empting their investment opportunities. This is an important issue. In recent theoretical and empirical work, investment has been identified as a key variable determining economic growth. Thus, if FDI crowds out domestic investment or fails to contribute to capital formation, there would be good reasons to question its benefits for recipient developing countries. Moreover, given the scarcity of domestic entrepreneurship and the need to nurture existing entrepreneurial talent, a finding that MNEs displace domestic firms would also cast doubts on the favorable development effects of FDI. These are all the important questions when one considers FDI as an important contributor of economy. FDI, as a share of total gross fixed capital formation is a significant and growing magnitude in developing countries. In fact, FDI is a much larger proportion of investment in developing than in developed countries, so it is important to study the impact of FDI on the socio-economic factors of developing economy. Keywords : Foreign Direct Investment, Socio Economic Factors, Developing Countries, Technological Transfer, Trade,
Human Capital. 1. INTRODUCTION Among the different forms of capital flows, academics and policymakers, talk about foreign direct investment (FDI) the most. This is because of several benefits of FDI and its importance in the world economy vis-à-vis other forms of capital flows. In the past fifteen years, FDI has been the dominant form of capital flow in the global economy, even for developing countries. Opening an economy for FDI attracts great attention and likewise many opinions pop-up. People, who oppose the opening up of economies to foreign investors condemn FDI as risky and destabilizing for developing economies. At the other end of the spectrum, supporters vouching for FDI say that it is stable and is a source of advanced technology and better managerial practices. So it is good for developing economies. The reality, however, is that it is not easy to draw any conclusions. A number of factors come into play to determine the growth and development effects of FDI. Therefore, here we have discussed some of the crucial socio economic factors of developing countries which are affected by FDI. The following research and information dissemination can rectify some of the misconceptions regarding FDI in developing countries. The following graph is showing the Year wise FDI in developing countries .We can see...
References:  Agarwal, J.P. (1980). Determinants of Foreign Direct Investment: A Survey. Weltwirtschaftliches Archive 116: 739–773.  Aaron, C. (1999),” The contribution of FDI to poverty alleviation,” Washington, DC: Foreign Investment Advisory Service.  Agrawal, Pradeep (2000): Economic Impact of Foreign Direct Investment in South Asia, Working Paper, Indira Gandhi Institute of Development Research, India.  Ahmad, N. and H. Jamal, "Regional Accounts of Sind", Research Report No. 52, Applied Economics Research Centre, University of Karachi, Karachi, 1986  Nunnenkamp, P. (2002). FDI and Economic Growth in developing Countries. Journal of world Investment, Vol. 3, in print  Soto, M. (2000). Capital Flows and Growth in Developing Countries: Recent Empirical Evidence. OECD Development Centre, Technical Paper 160, Paris.  Stiglitz, J.E. (2000). Capital Market Liberalization, Economic Growth, and Instability. World Development 28 (6): 1075– 1086.  UNCTAD (a, var. iss.). World Investment Report. United Nations, New York  De Mello, L.R and Luiz, R. (1997)”FDI in Developing Countries and Growth”, The Journal of Development Studies Vol.34 No1, pp 1-34  De Mello, L.R Jr. (1999) “Direct Foreign Investment –Led Growth: Evidence from Time Series Panel Data”, Oxford Economic Paper Vol. 51, pp.133-151  Digiovanni, J. (2005) “What Drives Capital Flows? The case of Cross-border MPA Activity and Financial deepening”, Journal of International Economics, pp. 65.
Please join StudyMode to read the full document