Foreign Direct InvestmentForeign investment that establishes a lasting interest in or effective management control over an enterprise. Foreign direct investment can include buying shares of an enterprise in another country, reinvesting earnings of a foreign- owned enterprise in the country where it is located, and parent firms extending loans to their foreign affiliates.

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.

Economic GrowthQuantitative change or expansion in a country's economy. Economic growth is conventionally measured as the percentage increase in gross domestic product (GDP) or gross national product (GNP) during one year.

Economic growth comes in two forms:a)Extensivelyb)Intensively"

Trends in FDIFlow and stock increased in the last 20 years

FDI has grown more rapidly than world trade because

Businesses fear protectionist pressures, FDI is seen a a way of circumventing trade barriers, Dramatic political and economic changes in many parts of the world, Globalization of the world economy has raised the vision of firms who now see the entire world as their market

The Direction of FDIHistorically, most FDI has been directed at the developed

nations of the world as firms based in advanced countries invested in other markets,the US has been the favorite target for FDI inflows

While developed nations still account for the largest share of FDI inflows, FDI into developing nations has increased

Most recent inflows into developing nations have been targeted at the emerging economies of South, East, and Southeast Asia

Costs of FDI to Host CountriesAdverse effects on competition

Adverse effects on the balance of paymentsAfter the initial capital inflow there is normally a

subsequent outflow of earningsForeign subsidiaries could import a substantial

number of inputs

National sovereignty and autonomySome host governments worry that FDI is

accompanied by some loss of economic independence resulting in the host country’s economy being controlled by a foreign corporation

RadicalView

PragmaticNationalism

FreeMarket

BENEFITS AND COSTS OF FDI

Host Country Benefits

The resource transfer effectThe employment effectThe balance of payments effectStandards of living

REGIONAL DEVELOPMENT IMPLICATIONS OF FDIForeign direct investment (FDI) has been accorded

a central role in the post-communist economic transformation of Central and Eastern Europe.

Regional effects of FDI in Central Europe (Czech Republic, Hungary, Poland and Slovakia) in the 1990s.

Defining FDI role in regional economic transformationsIntensification of Uneven DevelopmentDevelopment of a Dual EconomyFailure to Develop Linkages with Local and

Regional EconomiesContribution to Increased Regional Economic

Instability

Legal Institutions and FDI

Debate over relationship between legal institutions and foreign investment flows

Traditional: legal institutions play a crucial role in the process of market-oriented development by protecting private rights, especially the property and contract rights of foreign investors by creating the legal foundations for market-oriented