Monday, March 11, 2019
Foreign Direct Investment Essay
Foreign Direct Investment (FDI) is a key sh are of the global capital flow that entails world economic yield through and through investment opportunities. As an investment tool FDI also affect the add up growth of the host country. FDI as a share of GDP has induce the largest source of capital moving from substantial nations to developing ones. FDI inflow unremarkably involves starting new production facilities namely Greenfield investments or purchase of active business through mergers and acquisitions. In developing nations, equity investments as a percentage of gross matter income present been growing in new-fangled years.In spite of FDIs potential to impact on know-how, make and investment, development economists have unexpectedly not interested in purpose a strong causal link to economic growth. However, some studies have identified a irrefutable impact, further only if the country has piece capital and infrastructural support.Literature ReviewThe Gross Domestic P roduct (GDP) is a measure of a countrys aggregated economic output. It is the lowest market value of all goods and services finally produced within the dirt of a country in a particular year. GDP fucking be estimated in different ways and in different measurements which would throw off results with different implication. According to Sullivan and Steven (2003) GDP can be measured in three ways such as the product (or output) near, the income approach, and the utilise up approach. The expenditure approach measures that all of the product must be bought by soul and thus the value of the total product must be refer to total expenditures for purchase. Product approach aggregates the outputs of every business to get the total.The income approach measures the sum of all producers incomes based on the principal that the incomes of the productive factors must be equal to the value of their product. Foreign manoeuvre investment (FDI) is the persistent term capital investment by a country into some early(a) country. It usually involves participation in a business entity by center of management, joint-venture, technological know-how and expertise. There are three types of FDI inward foreign direct investment and outward foreign direct investment, resulting in a net income FDI inflow. Whereas, foreign direct investment stock or FDI Stock is the additive number for a given period. FDI and Economic GrowthAgrawal (2000) examined the impact of FDI inflows on GDP and found negative impact prior to 1980, mildly positive for early mid-eighties and strongly positive over the late eighties and early nineties. This supported the view that FDI is more likely to be well(p) in more open economies. His study was based on some(prenominal) time-series and cross- section analysis of data from five South Asian countries i.e. India, Pakistan, Bangladesh, Sri Lanka and Nepal. Athukorala (2003) argued that thither is no such extreme link between FDI and economic growth in Sri Lanka.However, the study did not imply that FDI is insignificant rather, the study cerebrate that the direction of causal relation was not towards from FDI to GDP growth but GDP growth to FDI. Lan (2006) stated that FDI and economic growth are serious determinants of each separate in Vietnam over the period of 1996-2003. olibanum the study concluded that economic growth in Vietnam was viewed as an important factor to attract FDI inflows into Vietnam. Feridun (2004) employ Granger test to examine the antecedent between FDI and GDP in the economy of Cyprus and found that GDP in Cyprus was caused only by the FDI.Further the study suggested that the economic development give depend on the performance in attracting foreign investment in Cyprus. Borensztein, Gregorio and Lee (1998) argued that FDI had a positive growth effect when the country had pitying capital that allowed it to disseminate FDI spillovers. However, Alfaro et al (2003) argued that FDI promotes economic growth in countries having developed and liberalized financial markets. Methodology and DataGDP data has been obtained from World rely website (World Development Indicators). Values are based upon GDP in national currency and the exchange rate projections provided by country economists for the group of other emerging market and developing countries. Exchanges rates for different economies are establish in the WEO assumptions for each WEO exercise. UNCTAD has the most complete FDI database and it compiles data on two-sided FDI flows both inflows and outflows.The main sources for UNCTADs FDI flows are national authorities (central banks or statistical office). These data are further complemented by data obtained from other international organizations such as the IMF, the World Bank (World Development Indicators), the shaping for Economic Co-operation and Development (OECD), and UNCTADs own estimates. Both Remittance and ordained Development Assistance (ODA) data are retrieved from the website that compiled from IMF balance of payments data. Empirical summary & Interpretations of the ResultsThis section presents the result of regressions of the previously defined measure of GDP using 20 years data of Bangladesh. Table 1 presents descriptive statistics for the variables used in the estimates. Summary statistics in table 3 include the flirt with and the standard deviation for time period of 1986-2005.