A Methodological Critique of Foreign Direct Investment in Development Countries

With the above established, it should now be explained what methodology will be used for the model under review as part of this research and reporting. The main thing of a statistical nature that is looked at when it comes to foreign direct investment is its impact on the economy. Since it is direct, it stands to reason that the investment will not get muddled and polluted by the path it takes into the economy. At the same time, the impact will surely not be a 1:1 situation where one dollar spent means one dollar of growth or anything else resembling that simplicity. As such, the equation and formulas used to calculate the impact of direct foreign investment will not be simple but it will not be overly complex, either (Borensztein, De Gregorio & Lee, 115-135).

FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)

[UNCTAD2003] As a result, global FDI grew much faster than either trade or income in the last two decades. Whereas world real GDP increased at an average rate of 3.00% between 1985 and 2004 and world exports by 6.29%, world real inflows of FDI increased by 9.85%. The liberalization processes varied considerably, however, across countries in timing, speed, and magnitude.

The approach that the authors take to this issue is to ask to quantitative questions. The first is "are there productivity spillovers from FDI to domestic firms?" and the second is "If so, how much should countries be willing to pay to attract FDI?" The authors note that

As we discuss in the second chapter, inward foreign investment is believed to boost the economic growth of host countries directly through employment creation and capital formation, and indirectly through knowledge, technology, and information spillovers. Multinationals have superior technologies, technical know-how, and managerial and marketing experiences than domestic firms. Similarly, exporting firms, domestic or foreign, have advantages over non-exporting firms regarding access to advanced technologies that are more productive and efficient. However, multinationals and exporters may not fully internalize the benefits of these assets. The benefits may spillover to domestic and non-exporting firms through market interactions,

Figure 1 shows the net inflow of FDI into the developing countries. There is a fall into the amount of FDI going to the developing countries from late 1980 to early 1990 and in the late 2000. Overall, there is an upward trend of amount of FDI going to the developing countries. The same trend with ODA shown in Figure 2. The amount of Net ODA received by developing countries from 1990 to mid-1990 is fluctuating then continued to fall until 2000. From year 2000 onwards, there is a steady increase of ODA received by the low-income countries. Compared with FDI and Net ODA, personal remittances has a steady upward trend (shown in Figure 3), noting a huge increase in 2008 of US$4.5 billion from US$15.2 billion in 2007. With the

that the reliant variable is affirmatively altered by commercial factors. Saltz (1992) examined the result of FDI on commercial development for the third globe countries. His explanations concur alongside those of Bos, Sanders and Secchi (1974), that the level of output of a host state will stagnate in cases of FDI whereas there could transpire monopolisation and pricing transfers, that will cause under-utilisation of labor, that will cause a lag in the level of internal consumption demand and in the end will lead development to stagnate. Barrell and Pain (1999) discovered the benefits of FDI by U.S. multinationals in four European Coalition states and discovered that FDI could alter the host country’s presentation affirmatively in cases whereas there are transfers of knowledge and vision nevertheless the FDI to the host economy. Carkovic and Levine (2002) endeavored to reassess the connection amid FDI and commercial development for 72 states above the era 1960-1995. Their aftermath indicated that for both industrialized and growing economies FDI inflows did not exert an autonomous impact on commercial growth. Specifically the exogenous constituent of FDI did not exert a reliable affirmative encounter on commercial development, even permitting for the level of education, the level of commercial progress, the level of commercial progress and transactions openness of the recipient country. Brada,

FDI also is said to stimulate domestic investment that helps in the improvement in human capital and institutions in the nations acting as the host

Based on OECD Factbook 2013: Economic, Environmental and Social Statistics, Foreign direct investment defined as cross-border investment by other investors from the economy that had the objective to gain long term interest or benefit from other countries that need capital for development. FDI have divided into 3 categorty such as Horizontal FDI, plaform FDI and vertical FDI. Kimberly state that Foreign direct investment is global economic growth which are apply in all countries such as developing and emerging market countries. The main purpose of FDI that the investor from other countries invests the surplus capital to other countries to gain benefit. At same time, the developing countries will gain more advanatge on

By using monthly time series data, we found that Foreign Direct Investment (FDI) is positively affecting the economic growth direct contribution, while Foreign Institutional Investment (FII) is negatively affecting the growth alb its, in a small way and make a preliminary attempt to test whether the international capital flows has positive impact on financial markets and economic growth. The empirical analysis using the time series data between April 1995 to December 2004 shows that FDI plays unambiguous role in contributing to economic growth.

It has been widely believed that Foreign Direct Investment (FDI) assists developing countries with the much-needed capital for economic growth. Part of the foreign direct investment is the inflow of up to date technology and management skills. In this paper, I will investigate to what extent foreign direct investment inflows into Ghana affects the nation 's Economic Growth and Development by addressing selected macro economic variables including GDP, Employment and Wages (Income). The Heckscher-ohlin model will be used to examine the relationship between foreign direct investment and Economic growth whiles Graphical analysis will be used to determine the effects of foreign direct investment on the selected macroeconomic variables. What has increasing FDI inflows contributed to Ghana’s economic growth? Has the contribution increased or decreased overtime? Has the effects of foreign direct investment inflows into Ghana been positive or negative? The study seeks to answer these and many more questions on the effects of foreign direct investment. I hypothesize that foreign direct investment has no significant impact on GDP but positively affects employment and wages overtime. Foreign direct investment should therefore be encouraged in developing countries like Ghana.

Abstract: This study examines empirically the relationship between FDI and economic growth using heterogeneous panel for the period 1983-2008. The empirical findings of Larsson panel co-integration show that FDI and economic growth are cointegrated. FMOLS results reveal that FDI and economic growth are positively related to each other. The results of panel homogeneous causality hypothesis show the existence of bi-directional causality between FDI and economic growth while the results of panel homogeneous non-causality hypothesis confirm the existence of unidirectional causality running from FDI to economic growth in selected panel. The results of heterogeneous causality hypothesis show the existence of bi-directional causality between FDI and economic growth only in case of Malaysia. The existence of uni-directional causality running from FDI to economic growth is observed in cases of Nepal, Singapore, Japan and Thailand

The results have shown positive statistically strong relationship between FDI and market capitalization thus reflecting the complementary role of FDI in the stock market development of Pakistan. Raza et al. (2012) investigated the role of foreign direct investment in developing host country’s stock markets and to examine whether they are related or not. The results disclosed a positive impact of foreign direct investment along with other explanatory variables in developing Stock markets of Pakistan.

Results of the study suggests causality in both directions (i.e. ‘XBD’ depends on ‘FDIBD’ and ‘FDIBD’ depends on ‘XBD’). It may be mentioned that the main objective of this analysis is related to first one only. However, second causation also provides worthwhile information for further studies. Results of the analysis are given in Table-1. The results reject the null hypothesis (of no causality) and statistically prove causality between FDI and exports in both directions.

Estimates reported by the European Bank for Reconstruction and Development (EBRD,1997) suggest that several countries have experienced very rapid growth of the private sector during the transition period. A number of studies have suggested that investment and growth in developing economies is positively associated with indicators of ‘openness’ and export promotion (Balasubramanyam et al., 1996). Such findings may suggest that investors prefer countries with relatively liberal trade regimes and few constraints on profit repatriation, possibly within regions with wider supra-national free trade arrangements. De Mello (2000) analyzed the time series and panel data for 32 OECD and non-OECD countries for the period 1970-90. He estimated the impact of FDI on capital accumulation and output growth in the recipient economy supporting the FDI led growth hypothesis. Similarly, Soto (2000); Alfaro, Chanda, Kalelmi-Ozcan, Sayek (2004); Li and Liu (2005) found positive impact of FDI on GDP growth. They all used FDI measure as percentage of GDP. Liu et al. (2002) examined the long-run relationship between economic growth, FDI and trade in China. A study on the quarterly data for imports,