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Foreign Direct Investment
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| Words: 4014 | Submitted: 18-Sep-2011
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DescriptionDeterminants of FDI
Determinants of FDI
THE POWER OF FDI IN REGARDS TO GLOBALIZATION:
Globalization is an inevitable and irreversible process, and dealing with the imperatives of globalization capitalizing on its positive aspects and mitigating the negative ones is perhaps the most important challenge for today. Globalization has enhanced the opportunities for success, but it has also posed new risks to developing countries.
Globalization has many faces; however, globalization is first and foremost comprehended in economic and financial terms. In this sense, it may be defined as the broadening and deepening linkages of national economies into a worldwide market for goods, services and especially capital.
Perhaps the most prominent face of globalization is the rapid integration of production and financial markets over the last decade; that is, trade and investment are the prime driving forces behind globalization. Foreign direct investment (FDI) has been one of the core features of globalization and the world economy over the past two decades. It has grown at an unprecedented pace for more than a decade, with only a slight interruption
during the recession of the early 1990s. More firms in more industries from more countries are expanding abroad through direct investment than ever before, and virtually all economies now compete to attract multinational enterprises (MNEs).
This trend has been driven by the complex interaction of technological change, evolving
corporate strategies towards a more global focus and major policy reform in individual countries. The past two decades have witnessed an unparalleled opening and modernization of economies in all regions, encompassing deregulation, de-mono-polization, privatization and private participation in the provision of infrastructure, and the reduction and simplification of tariffs. An integral part of this process has been the liberalization of foreign investment regimes. Indeed, the wish to attract FDI has been one of the driving forces behind the whole reform process. Although the pace and scale of reform have varied depending on the particular circumstances in each country, the direction of change has not.
Most developing countries were starting to look to FDI as a source of capital when flows of official development assistance (ODA) declined sharply in the 1990s. FDI usually represented a long-term commitment to the host country and contributed significantly to gross fixed capital formation in developing countries. FDI had several advantages over other types of capital flows, in particular its greater stability and the fact that it would not create obligations for the host country. FDI can play a key role in improving the capacity of the host country to respond to the opportunities offered by global economic integration, a goal increasingly recognized as one of the key aims of any development
HOST COUNTRY DETERMINANTS OF FDI:
Nowadays, virtually all countries are actively seeking to attract FDI, because of the
expected favorable effect on income ...
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