FOREIGN DIRECT INVESTMENT

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

Foreign direct investment means direct or indirect ownership of foreign enterprises in amounts or in kinds that enable the foreign investor to influence the management of the enterprise. Investment is classified as direct when the investor owns at least 10 percent of the voting securities of an incorporated business enterprise, an equivalent interest in an unincorporated business enterprise, or a 10 percent or more interest in real property transaction. However, in addition to the equity owned, it includes any other long-term claims against the enterprise in such forms as bonds, debentures, loans, and advances (World Bank, 2004, 90-154). This is in contrast with portfolio investment, which usually consists of financial assets such as stocks and bonds in amounts considered unlikely to convey a controlling influence in decision making within the enterprise. Portfolio investors are less concerned with influencing policy and the operations of an enterprise. However, it is important to note that under this classification, both direct and portfolio investors may hold both equity and debt issued by an enterprise. This paper focuses only on direct investment due to its importance to foreign control of resources and data availability.

The economic growth is an important consideration for the countries that are in the initial phases of development (Spears, 2001, 66-145). The economic growth brings prosperity and strengthens the position of the country in the whole world. The growth of the economy is associated with the increase in the Gross Domestic Product of the countries. If there is an increase in the final value of goods and services, the overall economy grows. The economic growth leads to the betterment of the entire macroeconomic variable particularly the increase in the human capital and physical capital. The economic growth is affected due to the number of factors that include the human capital, technological innovation and financial intermediation. However, the research study has taken into account the effects of the stock market on the economic growth of the developing countries. The countries that have been chosen in our research study are Philippines, Thailand and Vietnam. Different perspective of their economies has been discussed in the literature review part of the research study (Kasprzyk et.al, 1989, 100-123).

Economic growth has been defined as 'a sustained increase over a significant period of time in the quantity and/or quality of the goods and services produced in an economy. From the very birth of political economy, the nature of the causes, sources or determinants of economic growth has remained the central question confronting successive generations of economists and others contributing to the discipline. Economic growth has been variously conceptualized by economists in terms of stages, phases, cycles and long waves. Economists have also sought to measure long-term patterns of economic growth within and between nations. This growth accounting has identified the post-war era of the Bretton Woods international economic order as an era ...