"Private Foreign Capital in India"-Macro Economics
Problem:
Has Foreign Direct Investment (FDI) contributed to the growth of Gross Domestic Product (GDP) of India?
Null Hypothesis (Ho): There is no significant increase in growth of GDP due to FDI inflow in India.
Alternative Hypothesis (H1): There is significant increase in growth of GDP due to FDI inflow in India.
Project Précis:
Definition:
FDI: The acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation.
GDP: The sum total of all final goods and services produced within a country in a specified period of time.
Foreign direct investment is an important source of capital, complements domestic private investment, and is usually associated with new job opportunities, enhancement of technology and boosts economic growth in host countries. Therefore foreign direct investment flows are increasingly looked as a panacea for all the development needs of developing countries. So, there is an increasingly intense competition among countries to attract FDI inflows so much so that governments see the magnitudes of FDI received as indicators of their success.
Preliminary Literature Survey:
Recent literature has shown that some may bring valuable benefits to their host economies, others may crowd-out domestic enterprises and actually reduce host country welfare. Studies have also shown that host government policies such as screening mechanisms, performance requirements, incentives and pro-active promotion play an important role in determining the quality of FDI inflows.
Although FDI inflows into India have increased considerably since1991, its share would appear too small, especially if it is compared with that of other countries in the region such as China. India has been receiving FDI inflows of about $3 to 4 billion a year that represent a marginal under 2 per cent of total inflows attracted by developing countries. In contrast, China has been receiving over $45 billion of inflows representing nearly a quarter of total developing country FDI inflows.
Particulars China India
FDI Confidence Index score*(January 2000) 1.45 1.14
FDI Inflow (US $ billions, 1998) 45.5 2.3
FDI Stock (US $ billions, 1998) 261.1 13.2
GDP (nominal US $ billions, 1999 estimate) 993 468.4
* The FDI confidence index tracks the impact of likely political, economic and regulatory changes on the foreign direct investment intentions and preferences of the leaders of some of the world’s leading companies.
Two parameters i.e. Attractiveness and Current are considered for probable FDI inflow. From the diagram it is evident that India is average on Attractiveness and average on Current too. India scores well above countries like Indonesia, Thailand etc in terms of the parameters.
The measure of growth is flawed, how countries see their growth is based on the consumption of their people. Many countries use the GDP (Gross Domestic Product) as an indicator for growth, as defined in It’s All Connected, “(GDP) is a calculation of the total monetary value of goods and services produced annually in a country” (Wheeler 11). The...
Off-shoring is the establishment of business operations outside national boundaries. The process of moving business outside these boundaries is to garner an advantage either through tax breaks, lower wages, lower transportation cost and/or relaxed regulations ("Offshore definition," 2014). Many firms either branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its good to take advantage of lower cost (i.e. cheap labor). Markusen and Maskus found horizontal multinational replaces trade whereas, a vertical multinational positively correlates with trade (Markusen & Maskus, 2001).
I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.
Flow of money for the purpose of investments from one country to another country is called as Foreign Direct Investments. It is an investment made by a company based in one country for long lasting interest or controlling stake into a company in a foreign country. The nature of FDI could be either be inward or outward. Inward FDI refers to direct investments flowing into the home country from foreign land, and outward FDI refers to home country making direct investments in foreign land. The difference between inward FDI and outward FDI is net FDI inflow. Net FDI inflow could be either positive or negative based on the investments flowing between countries.
One of the most well accepted models of FDI is Buckley and Casson’s (1976) internalisation theory, who developed a model of MNCs and FDIs centered around the interrelationship between market imperfections, knowledge and the internalisation of production and consumption (Buckley and Casson, 2009). Specifically, the theory recognized that multinational corporations are both horizontally and vertically organized, and that the “the vertically integrated firm internalises a market for an intermediate product, just as the horizontal MNE [multinational enterprise] internalises markets for proprietary assets” (Caves, 1996: p.13). In addition, internalisation will occur, and multinational corporations will expand only as far as the advantages, including barriers to entry, are not offset by the costs of control, communi...
In the last 30 years the UK has put in a lot of effort to dramatically increase the inflows of FDI into the country. The strategy succeeded due to the rich and diverse ecosystem of the UK and ease of doing business. The inflow FDI has shown constant growth until 2000, which peaked to $118.8 billion. The IT bubble burst in 2000 caused a dramatic fall in IFDI which can be illustrated in Figure 1. The downfall resulted in the UK attracting only $16.8 billion in 2003. The data shows that the FDI inflows boosted in the period of 2004-2007, and that Mergers and Acquisitions that the Multinational Corporations used to enter the UK, as well as the reduced interest rate, can explain this.
Gross Domestic Product (GDP) is the market value of all final goods and services produced by factors of production within a country in a given period of time. It can be calculated using either the income, output, or expenditure method as illustrated on the circular flow of income diagram below.
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:
In the year 2007, China and India ranked first and second respectively in the list of ideal foreign direct investment (FDI) destinations, according to A T Kearney, a global strategic management consulting firm (The Press Trust of India Limited, 2007a). The two nations, because of their similarities in geopolitical, economic and demographic aspects, are often compared with each other. To determine which one is more attractive for businesses to expand to, this essay will examine the business environment of both countries from the following perspectives: political/legal, economic, socio-cultural and technological.
GDP measures the total value of all goods and services produced within that territory during a specified period. GDP is used to measure a country’s wealth. Basic’s of life, food, etc. shelter and clothing is not likely available to most people in poorer countries. The.
...titutional investors as a way to halt the rupees’ depreciation puts short-term stagnation in FDI and helps country to make an impression on the world wide level through liberalization and globalization, paving way to retail sector.
The Associated Chambers of Commerce and Industry of India. (2012). India’s Experience with fdI: Role of a Game Changer. Retrieved from http://www.assocham.org/arb/general/Indias_Experience_with_FDI_Role_of_a_Game_Changer.pdf
Export- oriented growth model will improve India’s Balance of Payment and help in accumulating foreign exchange reserves (which is very important given the
FDI inflow is divided into four (4) main sectors: agriculture, industries, infrastructure and tourism. FDI in the agricultural sector amounted to US $ 794.5 million in 2011, US $ 556.6 million in 2012 and a sharp increase of US $ 1,128.8 million in 2013. However, it started to decline of US $ 264.7 million in 2014 and US $ 482.6 million FDI flows in the infrastructure sector, which amounted for US $ 3,129.8 million in 2015 compared to the industrial sector, amounted for US $ 919.3 million and the tourism sector represents only US $ 111.9 million in
The Gross Domestic Product (GDP) is the total market value of in a country’s output. The GDP is the total market value of all final goods and services produced by factors in within given period of time that located in the country doesn’t matter they are citizens or foreign-owned companies. Hence, the GDP is the best way to measure the country economy.