FDI and economic growth
Foreign Direct Investment and Economic Growth
Prithu Sharma Binadi
According to Solow swan model, economic growth can be attributed to three variables. Population growth, savings (capital) and technology. Therefore according to theory we know that higher saving rates leads to growth but only temporarily. So the actual growth and persistence rise in living standard is achieved only by technological process. Thus, the technological improvement is vital for economic growth.
One of the major methods of increasing the technology is by foreign direct investment.
A company can invest overseas if it sees there is enough opportunity. Thus when a firm directly invests in production or other facilities in a foreign country, and maintains effective control of said investment. Foreign firm need to invest in country other than home country because they see ample opportunity in host country. The host country also benefits from FDI. A developing country generally lacks capital, technology and human resource as well. Thus any increase in capital and technology transfer will increase the consumption and economic wellbeing of the host nation. The investing firm will bring improved technology and skilled manpower. This will improve the host nation.
International Monetary Fund (IMF) guidelines consider an investment to be a foreign direct investment if it accounts for at least 10 percent of the foreign firm's voting stock of shares. However, many countries set a higher threshold because 10 percent is often not enough to establish effective management control of a company or demonstrate an investor's lasting interest.
There is a widespread belief among policymakers that foreign direct investment (FDI) enhances the productivity of host countries and promotes economic development. This belief stems from the fact that FDI not only provides direct capital financing but also creates positive externalities via the adoption of foreign technology and know-how.
Foreign direct
Prithu Sharma Binadi
According to Solow swan model, economic growth can be attributed to three variables. Population growth, savings (capital) and technology. Therefore according to theory we know that higher saving rates leads to growth but only temporarily. So the actual growth and persistence rise in living standard is achieved only by technological process. Thus, the technological improvement is vital for economic growth.
One of the major methods of increasing the technology is by foreign direct investment.
A company can invest overseas if it sees there is enough opportunity. Thus when a firm directly invests in production or other facilities in a foreign country, and maintains effective control of said investment. Foreign firm need to invest in country other than home country because they see ample opportunity in host country. The host country also benefits from FDI. A developing country generally lacks capital, technology and human resource as well. Thus any increase in capital and technology transfer will increase the consumption and economic wellbeing of the host nation. The investing firm will bring improved technology and skilled manpower. This will improve the host nation.
International Monetary Fund (IMF) guidelines consider an investment to be a foreign direct investment if it accounts for at least 10 percent of the foreign firm's voting stock of shares. However, many countries set a higher threshold because 10 percent is often not enough to establish effective management control of a company or demonstrate an investor's lasting interest.
There is a widespread belief among policymakers that foreign direct investment (FDI) enhances the productivity of host countries and promotes economic development. This belief stems from the fact that FDI not only provides direct capital financing but also creates positive externalities via the adoption of foreign technology and know-how.
Foreign direct