Foreign Direct Investment ( Fdi ) Essay examples

Foreign Direct Investment ( Fdi ) Essay examples

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Foreign direct investment (FDI) has played a considerable role in the development of South Africa’s economy, although in more recent years FDI has remained at relatively low levels compared with other emerging market countries. Most research papers on FDI in South African deal with FDI flows and do not take into consideration the main determinants. The theoretical foundation on the location pattern of FDI is rather fragmented. Several theories have been put forward to explain FDI based on corporate strategies and investment decisions of firms facing worldwide competition and in the context of choosing to operate in a foreign location instead of exporting or entering into a licensing agreement with a local producer .Lim (2001) and Basu and Srinivasan (2002) model suggest that five broad categories of factors are important in influencing FDI. These are market demand and size, agglomeration infrastructure, cost -related factors, investment environment, and country risk.
A South African study by Rusike (2007) revealed that long run determinants of FDI were traded openness, the exchange rate, and financial development. He stated that increased trade openness and development of the financial markets would attract FDI while a depreciating exchange rate would discourage foreign investors from investing FDI to South Africa. He states that policy recommendations were a relaxation of exchange controls and easing regulatory burdens for foreign investors so that they could be attracted to South Africa. The theoretical model states trade openness, exchange rate and financial development as determinants of FDI
Fedderke and Romm (2006) investigated the growth impact and determinants of FDI in South Africa from 1956–2003. Positive technological ...


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...inants of the amount of FDI invested in a country depends on the human capital of the host country. Similarly, Carbaugh (2000), suggest that the cost of labor and raw material which is a determinant factor for investment also determines the flow of FDI. This is so because the cost of production will invariably be cheaper. These theoretical studies state human capital as the main determinant of FDI
According to Barrell and Pain (1996), investors tend to postpone their investment when the currency in the targeted market strengthens. Basically, these are macroeconomic issues. In any rational investment, most in A major macroeconomic variable is the exchange rate. It is the rate at which one currency can be exchanged for another; it is known to be the value of one country’s currency as compared to that of another. Exchange rate could be fixed or floating. A fixed rate is

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Foreign Direct Investment ( Fdi ) Essay

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