Foreign Direct Investment (Fdi)

alien Direct Investment (Fdi)Investment done by a strange individual or company in productive capability of another country is what is meant by impertinent investment. It is the movement of capital from the national b sanctify in such a way tat it grants the investor the total authority over the acquired asset. FDI generally transfers both physical capital and intangible assets such as technology among nations. As per standard growth theories, the major factors driving economic growth be capital accumulation and technological innovation. Foreign direct investment plays a major consumption in the economic burgeon forthment of the emcee nation. It acts as a launching pad to the economic, social, infrastructural, technological developments of many soldiery countries. This is an age of globalised world economy and foreign direct investment is the major driving force behind the interdependence of national economies.FDI has a major role in taking the economy of the force country far ahead. The economically developing as well as the underdeveloped countries are dependent on the economically developed countries for financial aid which would help them to achieve some financial stability. For the last twenty years any form of foreign direct investment has gained in a cope of capital knowledge and technological resources into the economy of a country.Foreign direct investment is an essential and unavoidable part of national developmental plans. There are many positive aspects for FDI for which it is welcomed by all nations globally. It has become an integral tool for triggering economic growth for nations all over. FDI is well versed in utilizing human resource in the most effective way as a result of which high productivity is obtained. Foreign direct investment has gained popularity worldwide.Though most of the FDI flows is primarily based in the developed nations, it is very much crucial for developing countries as well (refer figure 1). As per the figure between 1990-2000 the aggregate wealth of the developing nations nearly became four times and its total trade volume shot over five folds, FDI flowing into the developing countries grew to18 times. Because of private direct investments, the familiarity of developing countries in the global production network increased considerably.Foreign direct investment made drastic changes in the economy of the host country. The substructure of the host country increased considerably. Technological development was also made possible. The living standard of the common people of the host country also meliorate due to foreign direct investment. FDI turned as a boon to the host country as the growth and development made by it was subtile as it not only improved the economic conditions of the nation, it also could improve the social conditions. Again the health sector of the host country could also develop because of foreign direct investment.Types of FDIForeign direct investment fire be classif ied into two types. They are Greenfield investment and Mergers and Acquisition.Greenfield investmentDirect investment by a foreign company or individual in new venture or expanding by constructing new facilities in the existing territories in the host country is known as green field investment. This type of FDI is done in developing countries like India where multinational companies build new organizations. Foreign companies eve hire employees from the host countries there by creating job opportunities. Developing nations gives captivating offers like tax-breaks, subsidies and incentives to the foreign companies in order to attract them. Losing corporate tax is minimal when compared to advantages to FDI.Benefits of Greenfield investment are several. In sourcing is done there by increasing employment opportunities .Also employees are paid more than those functional in domestic firms. Foreign countries invest in Research and development as a result of which the technology of the ho st country increases .Knowledge is imparted to the disadvantaged sections also. They go on expanding business by putting in more capital investments. Nations human capital gets utilized there by boosting up economy.Mergers and AcquisitionIt is a primary type of foreign direct investment.Mergers and Acquisitions take place when transfer of existing assets from a local firm to foreign firm is done. There are no long condition benefits to the local economy. When control over assets and operations are transferred from host to foreign company, cross border acquisition takes place. When assets and operations from different nations are made to a single new legal entity, cross border merger takes place.Forbidden TerritoriesForeign direct investment is not allowed in all sectors. In India it is certified to certain areas such as Arms and ammunition, Atomic Energy, Railway Transport, Coal and lignite, mining of iron, manganese, chromium, gypsum, sulfur, gold, diamonds, copper, zinc etc. Cer tain other sectors may be qualified in other countries for FDI.Policies to promote economic developmentSeveral studies have been conducted regarding foreign direct investment and economic development. The results obtained from the studies were rather conflicting and not reliable. any(prenominal) studies proved that the economic development in the host countries were only momentary. Certain studies show that there is no such effect. The linkage between the development and FBI is undercoat confusing and the results differ for each country. Some studies find that there are benefits. As a consequence of foreign investment employees enjoyed greater salary that those working in the domestic field. Some did not study this benefit.Policies which I would recommend a host country government to adopt towards foreign investors in order to promote economic development are as follows.Foreign investments are really an integral part of economic development of a host nation, specially economicall y developing and economically under developed nations. So a host government should attract foreign direct investors to the country if they believe the look would bring positive outputs. For that the host government has to give interesting incentives, subsidies, tax cuts etc. There is large competition among nations to bring foreign investors home so that their country could develop in all terms. The host government has to prove the foreign investors correct too in order to bring more investments in the particular field and also as a result of which they make their mind to invest in other sectors also. The host country authorities can give training to both workers and managers technological training so that foreign investors get attracted as there is supply of human resources. By adopting these methods if that particular investor succeeds, that succeeder will prompt another investor to the host country.Spillover benefits do exist, but not globally. Mainly those benefits are enjoyed by economically developing and under developed host nations. Every host country differs in its economy, human resource, technological advancements, educational quality, competition and its policies towards foreign direct investment (FDI).