To develop and flourish, a modern economy requires a massive amount of capital goods. So that developing countries actively look for foreign direct investment to strengthen industrial competitiveness and improve their growth prospects. Developing countries, emerging economies and countries in transition increasingly search for foreign direct investment as a source of economic growth and development, modernization and employment generation. Foreign investment can also do much for productivity—by providing access to new technologies, management expertise and export markets. This paper explores the performance of foreign direct investment in selected Asian countries and evaluates the contribution of foreign direct investment in economic growth. Issues like—why foreign direct investment need investment climate and foreign direct investment inflows in India are also discussed in the paper.

It is not possible to buy development so cheaply. The provision of foreign capital may yield a more adequate infrastructure but rarely by itself generates rapid development unless there are already large investment opportunities going a-begging.

The Foreign Direct Investment (FDI) is one of the economic aspects where ‘economics’ and ‘politics’ are closely interwoven. The World Investment Report, 2002 defines FDI as ‘an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident—in an economy other than that of the FDI enterprise, affiliate enterprise or foreign affiliate. It must be noted that attraction of FDI is significant in the economies of the developing countries. Foreign direct investment can contribute to gross domestic product and balance of payments. FDI can also contribute toward debt servicing repayments, stimulate export markets and produce foreign exchange revenue. FDI can stimulate product diversification through investments into new businesses, reducing market dependence on a limited number of sectors or products. Generally, there are two reasons why developing economies welcomed foreign direct investment: 1) it adds to the total investible resources, and 2) it acts as a vehicle for transferring various technological and managerial resources— all in one package. Thus, such foreign investments are expected to bring with them advanced technology, modern management skills and access to new external markets. The principalmessage of the World Development Report (WDR) 2005 to the developing countries is that, they should adopt liberal policies related to foreign direct investment to encourage economic growth and development. So, the WDR 2005 needs to provide a more balanced view of the trade and investment debate, in order to take into account the developing countries’ perspectives vis-à-vis foreign investment.