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The importance of foreign direct investment
The importance of foreign direct investment
Stages of development
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Using Rostow's model as a basis what are the stages in development a country needs to become a self-sustaining economy?
The Rostow model is used to detect what stage of development a nation is in, within the course of the 5 stages the increase in development will show that a country will gradually gain a self-sustaining economy. Within the 5 stages of the Rostow model each stage differs and eventually leads to a nation having a self-supporting economy.
Within the first couple of stages (Stage 1 & 2) the economy needs to have some foreign direct investment and also must develop some form of capital formation. In stage 3 & 4 the country becomes less reliable upon foreign investment and the economy starts to diversify, as
capital
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The economy has a lack of capital and a poor education system and thus labour is unskilled and only able to work within the primary sector. There is no real capital formation and there is limited savings thus the amount of investment within the nation is restricted apart from within the agricultural sector. The countries of Ethiopia and Somalia are clear examples of this, in order for development to occur the economy increase the amount of capital that it receives.
In order for the economy to receive capital there is an increase in foreign investment within the country and thus leads the stage 2 of the Rostow model. In the second stage, preconditions for take off, there is an increase in foreign investment into the agricultural area.
Development within the agricultural changes from subsistence to commercial and thus leads to some capital formation which introduces investment into infrastructure. If commercial development does occur it will mean that the government will be able to introduce tax and thus spend expenditure upon education, welfare, infrastructure and injections into the economy. A nation within the second stage of
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The economy begins to diversify and the secondary sector employment increases dramatically but there is still limited growth within the service industry. There is an increase within government expenditure and it leads to large-scale investment in infrastructure, which increase economic stimulus. Vietnam and Thailand are good examples of nations currently within stage 3 of the Rostow model.
The fourth stage of development within the Rostow model, the drive to maturity, is a clear motive for a nation to eventually have a self-supporting economy. In the fourth stage the economy becomes increasingly diversified and is less reliable upon foreign investment because there is enough capital formation within the country. The multiplier effect becomes active within the fourth stage and it means that there is an increase in government expenditure to spend more leading to larger industries and attraction of other like industries, industrial agglomeration. Rapid urbanisation occurs and there is a significant decrease in the rural population. Malaysia, China,
Argentina and Chile are all countries within the 4th stage of the
Rostow
According to the Neoclassical Solow Model, economic growth arises due to influences outside economy. As an exogenous growth model it focus on four variables: output (Y), capital accumulation (K), Technology (A) and labor or population growth (L) in order to explain economic growth.
In the long run, an economy of a nation that seeks to gain wealth by focusing on expanding its industrial sectors through specialization and the division of labour is not only natural, but it is also beneficial for self-interests of all by creating more dexterous workers, increasing labour efficiency, and spurring innovation.
Two internal barriers to economic growth and development are International trade and Political barriers. Barriers prevent and restrict development in some countries. While some things are barriers to economic growth some are barriers to economic development. In this case being international and having a political sense is a barrier to both thoughts. Change and the process of development is a multi-generational process.
The economy of a nation is a major indication of its success. One aspect of a nation's economic success or failure is the system of government. Whether a nation is socialistic, communistic, ruled by absolute sovereignty, or based on capitalistic principles can be a key factor in a country's economic success or failure. Government is the foundation of an economy but it is not what determines its success. Issues that determine a nation’s economic success include growth strategies, improved or increased resources, investment and savings, government policies, trade, foreign direct investment, income distribution, labor allocation, innovations in technology, and several other economic issues. I feel that economic growth is the main indicator of economic success. Additionally, innovations in technology, improving human capital, and improving foreign direct investment (FDI) are three issues that can lead to economic growth.
Another important aspect is upgrading and it refers to the movement of firms, countries or regions from low value activities to ones of higher value so that they can reap more benefits and become more actively involved in the global value addition process. Upgrading is affected by many factors including the institutional context of the countries involved in the value chain and the input/output structure. Depending on the country and industry, upgrading can be linear process where proficiency at one stage is required for upward movement in the value addition process, as is the case for horticulture and apparel industries (Gareffi and Fernandez-Stark 14). Non-linear patterns are visible in industries such as tourism and offshore
Growth in Africa is not enough for its people to grow, which is leading to poverty and hunger in Africa. Today Africa is one of the leading countries having poverty and economic problems. One half of the Africans live below the poverty line which leads to low human development in Africa. The main cause of poverty in Africa is a problem in its economic system and environmental factors. Because of poverty people of Africa remain hungry as they don’t have enough money to buy their food and their basic needs. Some of the African countries have less poverty rate than others due to good government and economic system in those countries. Most of the African is facing challenges to survive and keep their family healthy.
four adults in ten who can read and write and less than one in four
Ana Maria Romero-Martinez, Angeles Montoro-Sanchez (2008). How clusters can encourage entrepreneurship and venture creation Reasons and advantages, Int Entrep Manag J, (4) 315-329.
...rivate sector. The overall negative outcome could be observed on the post USSR countries, named as “transition countries”. Only Poland and Hungary had success along with Georgia, but the latter showed the worst case of output due to the civil wars in 1990s.
50). The book also states that instances such as entrepreneurship leads to a struggling growth because these entrepreneurs will risk money investments where corrupt officials interfere, leaving their investments to struggle. Corrupt officials are also less likely to initiate projects that will help the greater good and public welfare of some of these African countries, but instead only interfere in ones that will benefit them as a leader. They deal with bribes and diverting funds, resulting in the countries inability to grow. If this corruption furthers on, then this will continually be a consistent struggle for Africa as it lessens their progression to a stronger
There are many reasons why poverty is an increasing problem. The first is delayed modernization. These less-developed countries barely have enough skilled workers and managers and technology. Industrialized countries have four times as many managers and workers as the less-developed countries, also known as LDC's. It is almost impossible for the lower-developed countries to catch up or even compete with the industrialized countries....
“It is that which seeks to meet the needs and aspirations of the present generation without compromising the ability to meet the needs of future generations.”
The root cause of this problem is said to be poverty, which is a big hindrance in the way of development. The Indian Government introduced a law in 2006, where no child under 14 years of age should work. But this law came into force in 2008. As per the said definition of underdevelopment, it can be said that there may be many factors leading to the developing country being called underdeveloped but the economy is something which captures the whole argument in any factor discussed.
According to them, the first chain consists of economic growth benefiting human development, since economic growth is likely to lead families and individuals to use their heightened incomes to increase expenditures, which in turn furthers human development. At the same time, with the increased consumption and spending, health, education and infrastructure, systems grow and contribute to economic growth.