Essay On Fdi

Ali, Fathi A. Ahmed (2010) Essays on foreign direct investment, institutions, and economic growth. PhD thesis, University of Glasgow.

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Printed Thesis Information: http://encore.lib.gla.ac.uk/iii/encore/record/C__Rb2749051

Abstract

The aim of this thesis is to explore and study various dimensions of the interaction between one of the most important institutional quality aspects, namely property rights, and one important aspect of integration into the world economy: foreign direct investment (FDI), and links them to economic growth. In particular, this thesis explores whether the interaction between institutions and FDI has any implication for economic growth and whether there is any complementarity between the role of institutions and the role of FDI in fostering economic growth. To achieve this aim, the thesis was designed to include four empirical chapters in addition to two chapters: one for the introduction and the other for the conclusion. The first two empirical chapters studied the interrelationship between FDI and institutions. And the other two empirical chapters studied the implication of the interrelationship and the complementarity between FDI and institutions for economic growth. Chapter one motivated the thesis and set its aim and structure. The second chapter studies the role of institutions in determining FDI inflows and shows that institutional quality is one of the most important determinants of FDI. Based on this result, chapter three introduces a hypothesis that foreign investors will create a demand for better institutions in host countries, and that governments competing to attract more FDI will be induced to provide such institutions, leading to improvements in institutional quality in host countries. The empirical evidence reported in this chapter supports this hypothesis and shows that FDI inflows have a positive impact on property rights in host countries. Chapter four explores whether institutions play a role in determining the contribution of FDI to economic growth. The results presented in this chapter show that a host country needs to achieve a minimum level of institutional quality in order to be able to benefit from the positive externalities offered by FDI. Based on the results of chapter three, chapter five investigates whether the positive impact of FDI in institutional quality on host countries can be considered as a new growth-enhancing role for FDI. The results reported in chapter five show that the impact of FDI on economic growth that works via institutions, is a significant one, and is generally greater and more robust than the direct impact. Over all, the major contribution of this thesis is that it shows that a better understanding of the contribution of FDI to economic growth requires taking into account the interrelationship and the complementarity between FDI and institutions.

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To understand what FDI is we should first know the full form for FDI. FDI means Foreign Direct Investment. FDI is a process in which a company invests in another country where it does not possesses any business. FDI is usually done by the companies to expand its business and profits.

FDI in retail sector is booming now days as we all can see that more and more companies are coming to India to open its retail stores or doing joint ventures with host country companies. FDI has become a major area of investment by foreign companies to invest and earn profit. Companies try to come alone or with some other company as in India 100% is allowed only in single brand retail whereas in Multi Brand retail only 51% is being allowed for a company to invest in the retail sector.FDI has both positive and negative effects on the economy. In FDI the company tries to open its store in various areas in the countries alone or with joint venture with the other companies of home or host country. FDI is very important for a country as it helps in employment generation and economic growth. In India FDI was not allowed till 1991 but after new industrial policy the gates are being opened for the foreign companies to enter in to India. The main reason behind boom in FDI is Mergers & Acquisitions and Globalization in the world. In India it is seen that FDI is increasing day by day and it helps in increasing the economy of the country. FDI is of various types in which companies come in the country by opening it’s wholly owned stores or by doing joint ventures with the home country Like Carrefour, Wal-Mart etc had opened his wholesale cash and carry stores in India in which Wal-Mart store named as BEST PRICE and will open 50-60 stores in next 5 years down the line. Their major focus is on tier -2 and tier-3 cities as they see much business in these cities. There are various other companies which are coming in India for expanding their business of retail sector. According to a survey Indian Retail industry will grow at the rate of 10% in the coming years.

The other side of FDI in retail sector is increasing competition between local sellers due to this competition the local seller have to increase it quality with the competitive price strategy which they use for selling the product. FDI in retail sector is making the local seller to compete with them otherwise move out from the competitive league. FDI also make the price of the product so competitive that eventually it helps the consumer to get that product in fewer prices.

We can say that FDI has both positive as well as negative sides and it totally depend on thinking of a person. I think that FDI in retail sector is a good opportunity for Indian retailers to joint with them and try to overcome them so that consumer will get the best out of it whereas it provides opportunity to various unemployed person in the country.

CHIRAG TREHAN

MEERUT (U.P.)

My comments

  • Bad grammar
  • Lack of flow of ideas and facts
  • Marks - 3.5/10

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