Advantages And Disadvantages Of FDI

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In the empirical section, brief literature review will be provided by some authors who will try to demonstrate the benefits as well as the weaknesses associated with FDI for various countries. Most studies have taken into consideration variables related to capital, trade openess, labour cost, human capital and technology. 2.1.1 Theroretical Background In this section, many theories have been designed to help in shaping the concept of FDI. Studies have shown that theories of FDI had evolved through years. There is not a single theoritical explanation; rather, there are several theories for FDI. Nevertheless there is still research which are being undertaken. Defining Foreign Direct Investment Foreign Direct Investment (FDI) is a concept…show more content…
They classified FDI in terms of resource seeking, market seeking, efficiency seeking and strategic asset seeking. Resource-Seeking type of investment is one where the investor seeks resources from abroad which are not available in the resident country. For example, China and India invest in some African countries since these countries are rich in primary materials, such as minerals and oil. Through their studies, Aseidu (2002, 2006), Dupasquier & Osajwe (2006) have shown that it is the availability of natural resources in African countries which attract FDI there. Additionally, low cost labour or specialised labour is also incentives for resource-seeking investment. Accordingly, Dunning stressed on the importance of factor-cost such as low cost labour when investments are aimed at export. Resource-Seeking is also named as vertical or export-oriented and it brings the requirement that the investors have to relocate their production partly in the host…show more content…
It reduces the risk of investment for potential investors. Countries where the political atmosphere is unstable tend to receive fewer investment compared to those which are politically stable. It has been shown that market friendly environment is on rise in many developing countries. Thus, more FDI has been on increased in those countries. The 2005 World Bank World Development Report has demonstrated that the better the 'investment climate' the more investment will flow inward. Djankov et al (2000) find that countries which tend to be highly regulated in terms of business entry are more often corrupted. As such, bad governance tends to be highly prevailing in those countries and this discourages
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