Nature and the role of Foreign Direct Investment (FDI) in Ireland, China and India (2005)

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[...] "Foreign Direct Investment in the World Economy" in Staff Studies for the World Economic Outlook, IMF Mallampally, Padma "The importance of foreign direct investment for exports, economic growth and poverty" in UNCTAD, Globalization and Liberalization: Effects of International Economic Relations on Poverty, UNCTAD, Geneva Globe Nature and role of Foreign Direct Investment (FDI) in Ireland, China and India (2005) Agenda Theoretical background of FDI Focusing on the countries studied: India China Ireland Conclusion FDI: theoretical background FDI and development FDI increases the host country's growth rate through an efficient allocation of money because they are implemented: In countries where the education system and the facilities are well designed for LUCAS DUNNING's OLI paradigm (ownership, location, internalization): the advantages of the firm become the country's ones They offer extra resources for the host country FDI/GDP ratio in developing countries : in 1988 in 2000 FDI and development FDI can be considered a way to strengthen the domination of capitalist economies and the dependence of peripheral countries for PREBISCH The neomarxist theory is outdated but FDI can still have no effect, or even detrimental ones The dependence on foreign companies (ex. [...]

[...] In 2005, the cumulative stock of FDI invested in Ireland stood at 125% of GDP, the highest in the OECD countries, bar Luxembourg Transfer of technology the technology base has been enhanced as a result of FDI by technology-based MNEs Transfer of management a Study on clustering in indigenous software sector found that 1/3 of entrepreneurs worked in foreign software firms immediately before the start-up of new firm and 2/3 had worked in one at some stage in their careers (NESC, 2002). [...]

[...] Withdrawal even after the creation of joint ventures Protected small scale sector for a large number of products (FDI only up to India relied on FDI to develop important infrastructures (unlike China) Difficult to get this type of FDI Huge investments, need a large financial basis Long gestation period Advantages that should have made India a preferred destination for FDI: Democracy English language But: Corruption, red tape Need for reduction of sector-specific barriers China & FDI Competitive advantages China opened up its economy in late 1978 FDI was authorized in 1979 (main reasons: capital + transfer of technologies and knowledge) Flexible workforce with no job guarantees China's authoritarian political structure The weak integration of the Yuan in global markets made it a stable currency The entrepreneurs in Hong Kong and Taiwan moved to China because of rising wages Measures taken by China Dual strategy: Strong import protection measures Export promotion with duty-free zones Private sector took advantage of lower taxes (only 14% of the GDP) Selling state-owned enterprises at a low price Nature of FDI A selective approach: Constraints VS fiscal reduction (e.g. [...]

[...] (Census 2003) Conclusion India was first thought to have the same potential as China; however, the country hasn't managed to attract foreign companies because of the lack of proper legislation and their focus on the services sector. China followed the theory and became very successful in attracting FDI. The next step will be to put in practice the benefits received from investing countries. Inward FDI has decreased over the last few years in Ireland, whereas the country has seen a surge in outward investment that indicates the possible move towards a more conventional FDI pattern for a developed country. [...]

[...] Withdrawal even after the creation of joint ventures Protected small scale sector for a large number of products (FDI only up to India relied on FDI to develop important infrastructures (unlike China) Difficult to get this type of FDI Huge investments, need a large financial basis Long gestation period Advantages that should have made India a preferred destination for FDI: Democracy English language But : Corruption, red tape Need for reduction of sector-specific barriers China & FDI Competitive advantages China opened up its economy in late 1978 FDI was authorized in 1979 (main reasons: capital + transfer of technologies and knowledge) Flexible workforce with no job guarantees China's authoritarian political structure The weak integration of the Yuan in global markets made it a stable currency The entrepreneurs in Hong Kong and Taiwan moved to China because of rising wages Measures taken by China Dual strategy: Strong import protection measures Export promotion with duty-free zones Private sector took advantage of lower taxes (only 14% of the GDP) Selling state-owned enterprises at a low price Nature of FDI A selective approach: Constraints VS fiscal reduction (e.g. [...]