FOREIGN DIRECT INVESTMENTS

Determinants and Impact of FDI on Growth: Proposed Case Study of South-East Asia



Determinants and Impact of FDI on Growth: Proposed Case Study of South-East Asia

Introduction

oreign investment is the placement of capital in the long term in a foreign country for business creation agricultural , industrial and services, in order to internationalize.Foreign direct investment (FDI) has demonstrated its resilience to financial crisis, for example, in countries of East Asia remained stable during the 1997-98 crisis, in while other private capital flows, and flows portfolio equity investment and debt-record- were abrupt changes of direction in the same period (Tsai, 1994, 137-163). Foreign direct investment in the Asia-Pacific region (APR) are reduced for the second year in a row. Despite the impressive growth of the region's economy in 2010, the number of new projects with the participation of foreign investors is 20% lower than before the crisis. Investors are cautious because they do not believe until the end of the sustainability of recovery of Asian economies (Swan, 1956, 334-361).

In 2010, foreign direct investment (FDI) in Asia-Pacific region declined by 6%, while the year before the reduction was 16%, according to the fDi Intelligence, which collects such information. In 15 countries in the Asia-Pacific region in 2010 was announced on 4136 projects involving foreign investors. A year earlier, Greenfield was 4402. For comparison: in 2008 it was announced that 5261 of these projects. Thus, in 2010 new projects initiated with the money of foreign investors was 21% lower than before the crisis (Solow, 1957, 320).

Research Aims and Objectives

The aim of this study will be to analyse the determinants of Foreign Direct Investment flow into three countries from South East Asia which are Philippines, Thailand and Vietnam, throughout the period of 1990-2010. Another aim will be to understand the impact of FDI on growth through a cross sectional time series analysis of FDI flows and GDP from the year 1990-2010 for the three countries. It will be the secondary objective of the research to look into the strategies adopted by FDI investments in these countries while also discussing the theoretical backgrounds for them (Lucas, 1988, 3-42).

Literature Review

Direct investment (FDI) are the way to the internationalization of firms. They consist of purchases of corporate securities by non-residents to obtain "a lasting interest and ability to influence the management". They can take the form of a business creation, redemption of an existing business, or just a stake in the capital of an enterprise, provided it achieves a power of decision effective in the management. Specifically, according to the IMF definition, FDI know four forms:

The creation of a business or establishment abroad;

The acquisition of at least 10% of the share capital of a foreign company that already exists;

Reinvestment of profits by a subsidiary or a branch located abroad;

Transactions between the parent company of a global firm and its subsidiaries (subscription to a capital increase, loans, cash advances, etc) (Romer, 1994, 3-22).

FDI is a means for firms to internationalize their production ...