In recent times, the Foreign Direct Investment (FDI) has become a main source of foreign capital for developing economies and the inflow is showing an increasing trend. This paper elaborates the role FDI plays in the economic development of the developing economies. The increasing role is due to the fact that it brings in the most modern technology, capital skilled labor, etc. Considering this, most of the developing economies are providing excellent investment climate towards foreign capital.
Lifting of trade barriers between countries made it mandatory for domestic enterprises to match their competitors in developed nations. In order to make it possible domestic enterprises have to undergo dramatic structural change. Some of the factors that play a crucial role in such a scenario are technological upgradation, capital infusion, skilled labor etc. Due to this primary reason, FDI has attracted increasing interest from developing countries because of the perceived benefits in terms of the injection of capital, technology and knowledge.
Foreign Direct Investment has two facets that are explained by different theories. One of the facets is the Macro view or International Finance and the other is Micro view or Industrial organization. The Macro view terms FDI as the flow of capital across national borders, from home countries to host country, measured in Balance of Payment Statistics (BoP). The micro view tries to explain the motivations for investment in controlled foreign operations, from the viewpoint of the investor. |
