Relationship between Stock Price and FDI

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1.0 Introduction

Based on OECD Factbook 2013: Economic, Environmental and Social Statistics, Foreign direct investment defined as cross-border investment by other investors from the economy that had the objective to gain long term interest or benefit from other countries that need capital for development. FDI have divided into 3 categorty such as Horizontal FDI, plaform FDI and vertical FDI. Kimberly state that Foreign direct investment is global economic growth which are apply in all countries such as developing and emerging market countries. The main purpose of FDI that the investor from other countries invests the surplus capital to other countries to gain benefit. At same time, the developing countries will gain more advanatge on capital, technology transfer and human skill that increase the development of the countries.
The developing country always needs the fund or financial aid from all resources for developing their country. FDI are made by the multinational companies for the expansion towards the developing countries based on the country’s condition. What is foreign direct investment (FDI)? Foreign direct investment is the investment made by the multi-national company into other country through fund or investments which directly invest into the company. Foreign direct investment is different from indirect investment such portfolio flows or equities listed on a nation's stock exchange. FDI is divided into horizontal, vertical and conglomerate. Besides that, FDI can used to take over other country companies and Greenfield entry. The International Monetary fund (1977) mentioned that FDI is a investment that made to acquire a lasting interest in an enterprise operating in an economy by the investor which interest for havi...

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...rovide as be the introduction and the objective of our research while the chapter 2 will preview the literature review which related to previous study about relationship between the stock price and foreign direct investment. In chapter 3, the Methodology of our study will provide as the guideline for chapter 4 and 5. . While in chapter 4 and 5, we will come out with the result and make a conclusion based on the result that we get.
1.6 Methodology
In this study, we estimate the relationship between stock market and FDI which are in the long-term relationship by using Johnansen cointergration approach. Besides that, we measure the short term relationship between stock market and FDI by using using var approach. The variable in this study are the stock market trade volume, exchange rate, inflation rate and foreign direct investment from Indonesia, china and Malaysia

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