Thesis On Attracting Direct Foreign Investment

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Thesis On Attracting Direct Foreign Investment



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Understanding Foreign Direct Investment

Agarwal explains that most of the empirical studies based on this approaches failed to provide strong supporting evidences. As the theory primarily stands on mar- ginal returns or the expected profits and the actual profit always differs than the reported profit, this theory could not precisely describe the determinants of FDI flows Morris , p The investment simply does not depend upon the marginal returns; risk is also equally equated before doing any investment.

The projects, therefore, supple- mented by both expected returns and the risk factors. Tobin and Markowitz have led to the theoretical definition of this hypothesis under the theory of port- folio selection. Various attempts undertook to test this theory. One way to test this approach was to de- termine the share of FDI going to a group of countries in context to the average return on those investments and to the risk associated with that investment, and risk as meas- ured by the variance or the standard deviation of the rate of return Morris , see page Agarwal and Hufbauer further criticizes that the empirical test- ing of this approach provides only weak support for portfolio diversification theory.

This theory failed significantly, as sometimes the favorable condition for a group of countries was unfavorable for individual country. However, this empirical definition contains many theoretical problems it was superior to the theories of returns. This is particularly so for the case of import- substituting FDI. This theory is more popular and enlisted in many empirical findings.

This theory undertakes empirical testing in a number of ways. Despite of popu- larization of this theory, Agarwal points out the hazards of implanting this theory. One of the Problems with this theory was the decision of a firm regarding FDI based on the various considerations depending upon whether the FDI is initial or expla- natory Morris , p. Hymer was the first analyst to mark out that the structure of a market, and the characteristics of a firm play a vital role in defining FDI Morris This theory focuses on the industrial or- ganization hypothesis, the internalization hypothesis, the location hypothesis, the eclec- tic theory, the product life cycle hypothesis and the oligopolistic reactions hypothesis.

Among these six factors of imperfect market theory, this study primarily focused on the crucial four theories The industrial, the internalization, the eclectic and the product life cycle theory. Kindleberger , Caves and Dunning further extended the theory. This theory explains about why firms invest in foreign countries but fails to explain the motivation for choosing; which the Location hypothesis fulfills.

This theory benefits in terms of capital, management, technology, marketing, and access to raw ma- terials, economies of scale and bargaining and political power. The firm gets many fa- cilities and several offers by the host government. Morris explains that almost all of the hypotheses of FDI are cases of this general theory. This theory explains about firms using FDI regarding export and import from foreign countries. As this theory was general, Buckley pointed that it cannot be tested directly but can be sharpened to obtain 'relevant testable implications' Morris He introduces this theory integrating the industrial organization theory, the internalization theory and the location theory.

This three theories need to be acquired if the firm tends to practice foreign direct investment. He further argues that the following three conditions must be fulfilled to involve in FDI. Ownership advantages includes the right to technology, monopoly power and size, access to raw materials and access to cheap finance. Use of these advantages rather than selling or leasing to other firms. Must be beneficial to use these advantages with at least some factor inputs lo- cated abroad. Therefore, it makes location advantages else, it is an export job. Moosa has clearly defined FDI into following three possibilities: 1. If there are no internalization gains, the firm will license its ownership advan- tage to another firm, particularly if location factors favor expansion abroad.

If there are internalization gains and if location factors favor home expansion, the firm expands at home and exports. If there are internalization gains and, if location factors favor foreign expansion, FDI will take place and an MNC will emerge. This theory suggests that all forms of FDI can be defined with reference to its condition. It also further explains that these advantages are not likely to be uniformly spread among countries, industries, and enterprises and are likely to change over time Morris Vernon claims that a product goes through four stages: Innovation, growth, maturity and decline. Moosa has explained that the products initially introduced as innovation. Initially modest investments, while subsequent expansions incurred by reinvesting profit generated by a subsidiary in the host country.

The former establishes welfare improvement and promotes trade in both countries while the latter promotes un- favorable restructuring and has an adverse effect on trade in both countries. These factors play a crucial role in understanding the business environment and choosing host econo- mies. Political instability has an ad- verse effect on FDI. The tax policy of the host country severely affects FDI. Government regulations are either effective or defective in attracting or distracting FDI. They offer incentives on one hand and put restrictions on the activities of MNCs on the other which eventually encourages and later discou- rages inward FDI.

Desire to defend existing competitors local and foreign , and build a strong base for longer term, involvement of technology for longer periods, main- taining a parent-subsidiary relationship, etc are factors often considered being the in- strumental for decision making to invest abroad. Foreign direct investment is increasing these days. However, developing countries ranks highest in terms of inward FDI. The perfect market theory and imperfect market theories of FDI are vital for entrepre- neurs in terms of foreign investment. These theories build a strong base on choosing the location and setting business in an unknown economy. The below figure summarizes the theory of FDI. The political disputes are cooling, and several foreign investors are keeping an eye to Nepal.

Nepal has been widely entertaining most of its FDI in Manufacturing industries. The low labor cost might have pursued it. Many other sectors still require a massive investment. Considering the data, MNCs entails moderate number of risks in terms of investment, as the fear of competitors is low. The industrial policy and the Foreign Investment and Technology act, initially paved the way towards inward FDI throughout Nepalese economy. Khanal stated more emphasizes went to industry and trade sectors aiming private sectors to entertain a dominant role. Government would act merely as a mediator providing infrastructure and productive environment for investment. The FDI act does not seem to be productive as only few countable investments were procuring. The policy liberalization of and a re- newed trade treaty with India during dramatically increase the proportion of FDI to Nepal see Fig 4.

The foreign investment and technology transfer act of Nepal provides detail in- formation on Foreign investment see table 1. The following table displays the forms of Foreign Investment as per the Act Active Materials. The total numbers of foreign investment projects registered were around by the end of March amounting NRS The following figure describes FDI inflows from to Reformation of the act lured a number of investors at that period.

The FDI gradually decreased and reached negative level during , due to country's insurgency period and political dis- putes. Where the FDI was 1 million in and reached over 35 million in , this shows the graph-increasing trend of inward FDI. Nepal has not yet lured investors towards it comparing to other South Asian countries. Nepal has not been able to attract inward FDI to its length in comparison to its neighboring South Asian countries. A mere 0. After , the graph slinked as the country smudged in civil disputes surrounding unsuitable and loud environment. However, with the betterment of the political environment FDI graphs are slowly awakening from zero level. With its scenic beauty and a dense population, Nepal provides several other financial features to foreign inves- tors.

Nepal has several features to lure Foreign Investors. Along with it, with a hydropower capacity of Eighty thousand me- gawatt of electricity, it has been able to produce a mere Eight hundred megawatt of energy. Tourism, industrial, technical, manufacturing, etc is other sectors where inves- tors can jump. Nepalese soil is favorable to many agricultural products. Sheep farming is another rele- vant investment as the raw wool is a high demand for carpet industries. Nepal has suitable climate condition to various types of fruits, crops, vegetables. Thus, implementing technology and skills in the sectors, foreign investor can make a handsome business.

It holds the capacity to generate Eighty three thousand megawatt of electricity. This sector could be a significant investment as the demand of electricity is high in Nepal and In- dia. The following table describes the current hydropower projects in Nepal. The scenic beauty with several religious monuments and a home to the highest peak of the world has infinite resources that could attract tourist.

Mountains, hills, lake, springs, caves, etc have equipped Nepal as one of the most beautiful places of the world. Lumbini, the birthplace of Buddha, at- tracts thousands of Buddhist pilgrimage every year. Nepal telecommunication has been entertaining the mono- poly market for decades. A country with a population of 28 million seeks massive investment in this sector. Nepal still lacks high-speed internet facilities. Rules, regulation, criteria are easily accessible to foreign investors. Development Policy Review, 33 5 , — World Development, 59, Donaubauer, J. Godart, O. Harding, T. Javorcik, B. Moran, T. Overcoming Obstacles and Supporting Development.

Rhee, Y. Comments will be held for moderation. Your email address will not be published. Click here to cancel reply. Time limit is exhausted. These include administrative services that facilitate the operations of foreign firms such as obtaining business licenses and work permits , operational services that support the effective and efficient operations of foreign firms such as support for training, identifying local suppliers and cluster development to improve productivity and competitiveness and strategic services that influence the future direction of the firm and the development of capabilities.

For attracting FDI and optimising it, greater policy transparency, especially through increasing information flows, is essential for boosting investor confidence. Nepal also needs to undertake positive image building activities aggressively in order to induce investors that it has an attractive and competitive environment for business and to dismiss possible negative images of its location. Similarly, lessening investor risk through upgrading quality and effectiveness of laws, and predictability and efficiency of their implementation, are preconditions for attracting, retaining and expanding FDI.

Regulatory simplification, dismantling barriers to investment entry and addressing infrastructure constraints are crucial confidence-building gestures for the investors. Finally, policies to attract FDI should not be prepared in isolation. They need to be well-integrated and mainstreamed in national plans and strategies as FDI cuts across nearly all aspects of development. This will require active cooperation and proper coordination of all concerned government agencies, ministries and the private sector. Ultimately, investment promotion, in the end, is just about marketing a specific location to foreign investors.

This together with practical policies is bound to bring in technical know-how, enhance work force skills, raise productivity, generate business for local firms and create employment opportunities.

What are some funny poems about school? When looking for the best country to move your business How long do you have to study to become an astronaut?, always consider the following Thesis on attracting direct foreign investment Accessibility of raw Thesis dedication in memory of and the infrastructure of the country in general. Political instability has an ad- verse effect on FDI. Thesis on attracting direct foreign investment example, Ireland has been successful in attracting investment from Google and Microsoft. This cookie is used to Thesis statement for macbeth tragic hero the visitor with relevant content and advertisement. Foreign direct investment is Thesis on attracting direct foreign investment these days. Powered by.