留學生外國直接投資dissertation

增加外國直接投資的流入
 

外國直接投資(FDI)是一種投資方式，旨在為企業帶來堅定和持久的經濟效益，以維持股東和儲戶經濟收入的穩定和平衡。一個母公司與一個外國企業聯合起來形成外國跨國公司(跨國公司)。投資，就必須給母公司權力并且控制其外國子公司,這樣才會被視為外國直接投資。
 

發展中國家跨國公司的增加使其為全球化時代掀開了新的一頁。外商直接投資一度被視為新興市場的邊緣活動,現在，對許多外國公司的競爭力和經濟增長來說必不可少。2002年,發展中國家的跨國公司投資約1620億美元,高于1985年僅有的150億美元。今天，他們的投資價值超過了2萬億美元,并且還在增長。
 

外商直接投資對經濟發展最重要的影響是外國資本增加,以及伴隨著它出現的技術和管理技能。另一方面,外國公司獲得免稅期的自助服務,進口關稅豁免,土地和權力的補貼和其他的相關利益，這些都是發展中國家因為相信這是吸引跨國公司的方式而提供的。

 

Increasing Inflows Foreign Direct Investment Economics Essay

 

Foreign Direct Investment (FDI) is a form of investment made to gain unwavering and long-lasting interest in enterprises that are operated outside of the economy of a shareholder / depositor. A parent enterprise and a foreign associate unite to form a Multinational Corporation (MNC). The investment must give the parent enterprise power and control over its foreign affiliate, in order to be deemed as a FDI.

 

Growth in activity by multinationals in the developing world has opened a new chapter in the era of globalization. Once seen as a marginal activity in emerging markets, FDI has now become essential to the competitiveness and growth of many foreign companies. In 2002, multinationals invested about $162 billion in the developing world, up from just $15 billion in 1985. Today their investments are worth more than $2 trillion and growing.

 

The most important usage of FDI for developing economy is increase in foreign capital, along with the technology and management skills that accompany it. On the flip side, foreign companies get a smorgasbord of tax holidays, import duty exemptions, subsidized land and power, and other enticements, all offered by developing countries in the belief that this is the way to attract multinationals. For every job created, the incentives may add up to tens of thousands of dollars annually—in some cases, more than $200,000 in net present value. (Farrell, Remes, and Schulz, 2004)

 

Even though developing nations dole out lucrative incentives to attract foreign investment, they are also often wary of multinational companies. In order to protect domestic industry and ensure foreign investment benefits the local economy, many of these nations restrict the way foreign companies can operate.

 

Facts and Figures:

 

The global recession has affected various aspects of many economies worldwide and FDI has been no exception. FDI project numbers have declined by 14%, when we compare the figures for the first six months of 2009 to that of 2008. However, companies will still invest in overseas operations, no matter how hard times are, to break into new markets.

 

In 2009 the Asia-Pacific region has been the top destination for FDI, attracting total of 32% of all FDI projects. North America performed better in the first half of 2009, attracting 17% more projects, 32% more capital investment and 22% more jobs created than the same period in 2008. In the first half of 2009, business services was the most popular sector for FDI projects pushing 2008’s top sector, financial services, to third place, with figures falling by 28%. Meanwhile, the number of projects set up in the textiles sector has grown by 43%. (Loewendahl, 2009)

 

Brazil proved to be the largest recipient of FDI in Latin America by attracting USD 42 billion of FDI in 2008. The majority of the inflow was in form of mergers and acquisitions related to the privatization of the electricity, telecommunications and financial sectors. There is no impediment to the inflow of foreign capital, however, its participation is limited or prohibited in: development of activities involving nuclear energy; ownership and management of newspapers, television, radio networks, etc.; health services; ownership of rural areas and businesses on frontier zones; mining; post office and telegraph services; airlines with domestic flight concessions and the aerospace industry. (Soliani and Dantas, 2009)

 

Mexico’s ten-year transformation from one of the most closed to one of the most open economies in the world was capped by the 1994 North American Free Trade Agreement (NAFTA). The expectation was that economic liberalization would stimulate large inflows of FDI in manufacturing, especially by North American corporations looking for a low-wage export platform.

 

By increasing exports, FDI would alleviate Mexico’s debt overhang, create high-productivity manufacturing jobs, and fuel economic growth. FDI was also expected to cure environmental and social problems.

 

New manufacturing jobs would absorb the urban poor and farmers displaced by NAFTA, allowing Mexico, in the words of President Carlos Salinas to “export goods, not people.” Moreover, transnational corporations would transfer “clean technology” and state-of-the-art environmental management systems, reducing the pollution and health risks associated with rapid industrial growth, especially in developing countries with poor regulatory systems. (Economy Watch, 2007)

 

The Indian Scenario:

 

India's FDI flows during the 2008-08 fiscal year increased to over US$25 billion, despite the global financial crisis. Increasingly prosperous Indian consumer market benefited multinational firms while multinational firms have also become significant investors in global markets, with rapidly growing assets abroad.

 

The increased flow of FDI in India has given a major boost to the country's economy and so measures must be taken in order to ensure that the flow of FDI in India continues to grow. According to Indian FDI Policy, a foreign firm is allowed to make investment only in the following form: financial alliance, joint schemes and technical alliance, capital markets, via Euro issues, private placements or preferential allotments.

 

FDI in India: Means of Promoting Economic Development

 

In the early 1990s, the Indian government made several reforms in the economic policy of the country. This aided in the liberalization and deregulation of the Indian economy and opened the country's markets to foreign direct investment. Due to this, huge amount of foreign direct investment came into India through non- resident Indians, international companies, and various other foreign investors. This growth of FDI in India boosted the economic growth of the country. (Sinha, 2009)

 

In the fiscal year 2008-09, FDI equity inflow in India increased to USD 27.31 billion compared to USD 5.5 billion in fiscal 2005-06. Further, despite the economic slowdown, the FDI equity inflows in 2007-08 were USD 24.58 billion and increased to USD 27.31 billion in 2008-09, showing a growth of 11% over the previous financial year.

 

FDI in India has played an important role in the development of the Indian economy. FDI in India has enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country.

 

Expansion in economic activity:

 

A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. FDI increases capital stock, boosts human capital accumulation (though usually unmeasured in labour stock), and speeds up technological advances. Nevertheless, the most direct impacts of FDI are through its role in the accumulation of investment capital.

 

Rise in Trading of Goods and Services

 

FDI has opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country.

 

Employment Generation and skill levels

 

FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India.

 

Technology and knowledge transfer

 

FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India.

 

Linkages and spillover to domestic firms

 

Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market.

 

Source (Business Maps of India)

 

Factors responsible for growth of FDI inflow in India:

 

According to the Indian FDI model, the country has grown due to the quality of its human capital, the size of its market, the rate of growth of its market, and the political stability witnessed in the past two decades.

 

1) Availability of Cheap and Educated Labour:

 

Availability a vast pool of English-speaking graduates, engineers and other educated professionals, contribute to helping India in business process outsourcing, IT and IT-enabled services. The youngest population in the India, with the highest fertility rates, gives the country a ‘demographic dividend’ competitive advantage over Brazil or Mexico where people will start retiring from 2017 after contributing to the economic activity for nearly 40 years. This abundant human capital from India can supply continuous educated cheap labour to the globalized markets for decades to come. (Federal Ministry of Commerce & Industry, GoI, 2009)

 

2) Size and Scale of Economy:

 

Another factor for the growth of FDI into India has been the size of its economy. The Indian market has been growing continuously for the past two decades. It has grown from less than $500 billion in 2003 to more than $1200 billion in 2008. In terms of size, the Indian economy is currently the 10th largest economy in the world and the fourth largest n terms of purchase power parity after the US, Japan and China. Foreign companies are attracted to this market size and prefer to hedge their risks as markets in the developed world have matured, not giving any incremental growth opportunities to companies in their homeland. GDP size of India has also attracted increased FDI in past few years. (Federal Ministry of Commerce & Industry, GoI, 2009)

 

3) Political Stability:

 

Political stability also plays a vital role in attracting foreign investments. The past four Indian governments have completed their full five-year term and the latest government has achieved its second consecutive term with a majority in parliament, for a term of office which runs until 2014. (Federal Ministry of Commerce & Industry, GoI, 2009)

 

Recommendation of policies for attracting FDI inflow in India:

 

Global competition for FDI has sharpened considerably over the last two decades. Improving foreign direct attractiveness and making the most of local advantages is a challenging task for national governments that calls for the design and implementation of sophisticated and comprehensive policy measures.

 

Considering that the main aim of FDI is to serve long-term development goals and enhance competitiveness it should be a quite consistent match between the foreign direct investment attraction policy and industrial policy. Therefore FDI incentives should be elaborated based on Indian Government’s vision of the future industrial landscape as investors’ priorities depend on the sector they are going to invest.

 

According to Ernst & Young Investment Attractiveness Survey, companies operating in high-tech and business services tend to favour quality factors such as telecom infrastructure and skill level of human capital. On the other hand, industrial companies are most keen on cost efficiency, tax burdens, legal and regulatory factors. Hence, investors should be carefully targeted based on sector prospects and investment motives, e.g. such policy measures as development of physical and technical infrastructure and promotion of clusters, development of human resources can effectively help to attract FDI at high value added sectors and benefit from it.

 

Few recommendations can be drawn from selected countries experience:

 

1) Infrastructure Development:

 

Investment in infrastructural improvement is one of crucial step that India needs to make for promoting its economic development and for attracting FDI inflow. The Indian infrastructure has to improve significantly and investment of approx. USD 500 billon has to be allowed by the government to freely enter into the country through the FDI route. Recently India has achieved some success in completing a few important infrastructure-related projects such as in metro rail (DMRC), highways (Golden Quadrilateral), electricity (DVP) and telecommunications (mobile usage). These projects should be emulated in other parts of the country and infrastructure should be developed at rapid pace by allowing free capital inflows. (Soliani and Dantas, 2009)

 

However, only making structural changes in the economic set-up will not provide inclusive and complete growth. India should also construct ‘large but few’ SEZs instead of making ‘small and many’ SEZs on the coastal areas of the seven lesser-developed states of Bihar, Madhya Pradesh, Orissa, Uttarakhand, Uttar Pradesh, Chattisgarh and Jharkhand. Establishing labor-intensive manufacturing especially export-oriented in these SEZ’s will aid to feed and capture global markets.

 

Limited infrastructure investment has long been a constraint to Brazil’s economic growth. While Brazil's FDI doubled in 2007 to US$35 billion, and it is by far the largest recipient in Latin America, there is yet significant potential for greater foreign involvement in infrastructure.

 

Some of common reasons for the same can be cited as the global financial crisis, the growing weakness of its currency and sharp decline in commodity prices affecting Brazil's ability to finance infrastructure investment projects. This makes it all the more important to look out FDI injection in infrastructure activities to sustain its economic growth. (Soliani and Dantas, 2009)

 

2) Policy Liberalization:

 

India needs to follow a policy of openness – beginning with privatizations in such sectors as oil, banking, steel, air travel and cement manufacturing. By lowering tariffs to 20% levels, it can also increase global trade. Rather than protecting public companies and covering inefficient private sector firms, government should allow them to freely compete with foreign companies or be merged by these companies if they cannot fight competition from them.

 

In order to secure the most from FDI, host countries should abandon their incentives and regulations and focus on strengthening their economic foundations, in particular, stabilizing the economy and promoting competitive markets. Macroeconomic instability discourages long-term investment by making demand, prices, and interest rates difficult to forecast. For instance, most foreign investment entered Brazil, only after the government stabilized its economy through the 1994 Real Plan. (Tochitskaya, 2009)

 

3) Measures to Stop Brain Drain and Attract NRIs:

 

One urgent step that the government needs to take is to increase the proportion of the experienced, talented and foreign-educated professionals in Indian retail market. The 3 million rich Indian NRIs has to be attracted from the US to invest in India. They should be encouraged to obtain free ‘dual citizenship’ of India. They can be asked to contribute to the growth of mass manufacturing in the SEZs and export products to the Western world and can be attracted by announcing a free seven-year tax holiday on their personal income. The consumption itself from these non-resident Indians will push the economy up. Immediate visas, on Indian ports of entry, should be granted to them who wish to travel, live and invest in India.

 

India can form a network of NRIs through various social or cultural programs like the Chinese ‘chun-hui’ programme and encourage them to start up firms in India. Indian banks can be asked to attract investment from NRIs through special instruments like close-end mutual funds or bonds with higher interest rates targeted towards them. (Tochitskaya, 2009)

 

4) Open and Flexible Labour Laws:

 

Manufacturing activity in India can be increase due to flexible labour laws. Current bankruptcy filing laws restrict laying off workers and make it very difficult for firms to declare bankruptcy. The government must repeal the law. This change will help to improve labour productivity and attract more FDI to India.

 

Mexico has long been one of the more preferred nations in which to make an investment, whether in manufacturing or infrastructure FDI. The large population, inexpensive labour pool, stable political environment and proximity to the US have given it significant advantages over other potential recipients of FDI. However, it has recently faced greater competition for FDI from China and other countries. A response to these challenges must include a change in the country’s labour laws. (Economy Watch, 2007)

 

5) Healthy Competition:

 

Competition is vital to diffuse the impact of FDI, for without competitive markets, the entry of foreign players has little effect on inefficient domestic incumbents and their productivity. FDI had the positive impact when domestic players—such as companies in Mexico’s food-retailing industry, China’s consumer electronics industry, and India’s BPO Industry— weren’t protected from foreign rivals. To sustain competitive markets, a host nation must reduce restrictions on foreign investment, lower import tariffs, streamline the requirements for starting new businesses, and encourage new market entrants.

 

The host nation can also promote fair competition by banning on companies in the gray market, which don’t pay taxes or obey regulatory requirements. These loop holes give such companies an unearned cost advantage, allowing them to stay in business despite their small scale and inefficiency. For instance, in the Brazilian food-retailing sector, up to fifty percent of all companies are profitable because they underpay their value-added and payroll taxes. Similarly, small-scale PC assembly companies in Brazil and India compete with leading global PC manufacturers by avoiding taxes that in some cases account for close to 50 percent of the consumer’s final price. (Tochitskaya, 2009)

 

6) Economic Co-operation:

 

The Indian government can increase economic cooperation with the foreign countries by organizing Joint Commissions/Joint Committees, other bilateral channels like interaction with the delegations visiting the country and promoting visits abroad for discussions on issues of mutual interest and business/ investment meets between Indian and foreign entrepreneurs. The Department of Industrial Policy and Promotion can participate in discussions covering industrial cooperation organized by other Ministries and Departments of Government of India and the Joint Business Council meetings.

 

The government also introduces investment promotion activities through organization of various events like Destination India and Invest India in developed countries with FDI potential to create awareness about the investment climate and opportunities in India, as well as to provide support to potential investors. (Federal Ministry of Commerce & Industry, GoI, 2009)

 

Conclusion:

 

In a nutshell, as per the international experience, most of the countries which succeed in FDI attraction have been implementing policy that provides foreign investors with favourable environment and helps them to conduct business activity without incurring unnecessary risk. However, it covers not only the provision of incentives (e.g. tax exemption or reduction, financial subsidies, decrease import tariffs and etc.) but execution of general policy measures that ensure stable macroeconomic environment. To improve the investment climate the Government should ensure stable macroeconomic environment, speed up privatization, improve business environment and increase its predictability, take measures to combat bureaucracy, corruption. (Tochitskaya, 2009)