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163989-25

Course BUSI1460: Adv Prof Dev & Res Course School/Level BU/PG
Coursework Long project proposal Assessment Weight 70.00%
Tutor EJ Lethbridge Submission Deadline 15/04/2010

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regarding Cheating and Plagiarism.

000576335 Kunal Shah

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 Role and Impact of FDI in Developing Country

Aim and Objective of Project

Globalization has been leading reason behind the increase in foreign direct investment
in developing countries. Globalization and liberalization has increased the competition
among the different firm, companies and MNEs of the world. This has force firm to
change their approaches, direction in search of new market, consumer, sources of raw
material, plants, developing new technology and know-how. All these required large
inflow and outflow of capital from one country and to another countries. Hence a FDI
flow from developed countries to developing countries has impact economic growth,
local market, local competitor, consumer of host countries. Hence main aim and
objective of these articles or document is research and workout on the role and impact
of FDI in developing countries of world. Many developing countries in the world whether
it may be in Asia, Africa, South East Asia, South America no one has been save from
impact of FDI by the large MNEs. Several research works has been done by
International Business scholar (IB) on the impact and role of FDI in the developing
countries. Their research work also include that external capital which is coming from
home countries to host countries whether it harmful or beneficial to the host countries.
FDI is regarded as one of biggest reason for any economic crisis in the world because it
is direct investment by the investor. Another risk-sharing property of FDI is that FDI is
regarded as one of stronger way and path to the economic growth in host countries than
any other type of capital flow. FDI not only provide capital, it also offers access to the
inflow of international available technology and management skill (The Economists
2001).

Another aim and objective of this document is to research on pros and cons of FDI in
developing countries and also to developed countries. There are been also several
research and debate happen in the past whether FDI flow is beneficial or harmful to the
country. Researcher and analyst blame the FDI for any crisis happened in the world.
Some researcher states that whether it is good idea for any economy to depend on
external money for their economic growth and development. These researchers who
opposed FDI condemn that FDI as risky and dissatisfaction for developing economy
while some researcher support FDI that it stabilize the economic condition and better
managerial practice. Hence another aim of this document is to research on impact of
FDI in developing economy whether developing countries are getting beneficial from
FDI or it adversely affects the countries (Nunnerkamp, 2002). There has been
continuously change in trend of FDI flow. During 1960s FDI flow was around $2 billion
per annum but between 1974 and 1982 it was around $8 billion. Similarly till 2000 FDI
flow was around $1600 billion but after 2000 FDI flow decreased. After 2005 FDI flow
there has been sudden increased in FDI flow but two year later it has reach peak and
after 2007 it has fall down due to economic crisis and recession. Hence FDI flow never
been a stable and there is always continuously change in FDI flow which affect the
economic development of developing countries as it lead to inflow and outflow of foreign
currency.

Literature Review
FDI investment is regarded as a one of the important for the upliftment of any economy
in the world. FDI has a direct impact and influence on the economy development of any
economy. During last 15 years due to large inflow of capital and money in developing
countries, the importance of FDI in world economy has been increased rapidly. Hence
the total stock of FDI in the world GDP has been increased from 8% in 1990 to 26% in
2006 and this total stock of FDI has been more in developing countries and the most the
pronounce and emerging economics countries called BRIC namely Brazil, Russia,
China and India. Today, due to the large beneficial of FDI to the developing countries,
government has started making policy which is beneficial to MNEs for the large
investment in the countries (OCED, 2008). Hence FDI investment has affect the many
different countries of world. FDI has affect the many African Countries and Asian
countries like India, China and small island countries like Indonesia, Malaysia and
Singapore etc. There has been also a social impact of a FDI in developing countries, it
affect the trade balance, infrastructure development, social life standard of living of the
developing countries. Hence due to impact of FDI on the economic growth of country
different research has different perspective on the FDI and its contribution to the
economic growth. According to Bijit Bora (2002), government of many countries are
making liberal policy for encouraging FDI so that there is need to understand the
impact, contribution, factor and determinate and implication of FDI. Similarly according
to Townsend (2003), the relationship between the foreign direct investment and
economic growth is still not clear.

Lall (2002) states that the influence and contribution to FDI to the economic growth and
development of the country depend upon the many factors and it varies over the time
and from one host country to another. Hence every researcher and scholar has their
own perception and view on the impact of FDI and their contribution to the economic
growth of the developing countries. FDI has also leads to one of big reason behind the
download of economic of countries as its lead to economic crisis due to outflow of
foreign currency from the host country. Hence debate has been still going on in the
world that FDI is beneficial to the developing countries or not (Adewumi, 2006).

MNE have a good reserve of capital, skill labors and power to invest their money in
other countries so as to exploit full resources available and to gain competitive
advantage over its competitor. The annual turnover of some MNE is more than GDP of
many African countries. Hence these MNE have financial strength to invest in large
plant. In case of local investor, they lack huge capital, finance to invest this huge fund.
Hence it is not possible for local investor to afford these. With the help of FDI local
investor make available these scare resources. According to Jones (1996) transfer of
huge capital and finance by MNC can lead to increase and contribute to domestic
capital formation for the developing countries and also help to increase domestic
saving. Similarly, Secretary General of United Nation „Koffi A Annan‟ states the
important and advantages of FDI to the developing countries. According to him, the
different advantages of FDI to developing countries are it help to creates jobs, increase
the productivity of company, helps to increase the export if the countries and transfer of
technology from developed countries to developing countries and FDI also help
countries to make long term economic development and planning (United Nation, 2003)

Researcher work has also shown that FDI work positively toward the growth of many
countries. With the help of recent data and methodology many researcher has come on
the conclusion that FDI has positive impact on the economic growth of the countries.
According to Loungani and Razin (2001), they states that the three sources of capital
inflow such as FDI, portfolio investment and primary bank loan, FDI was the most
strongest and resilient during the global financial crises from 1997 – 1998 and also
during financial crises in Latin America in the 1980s. In the same way, research done by
the Mass, Ram Chandra and Shah have a similar conclusion in the study of FDI. In their
research, they focus on three African Countries such as Kenya, Tanzania and Uganda.
The outcome of their research was that percentage of export from MNE was far better
than from local investor. OCED (2003) also claim that FDI increased the efficiency and
utilization of resources and also raised the productivity of resources in the host country.

The contribution of FDI to the China‟s economic growth and international trade has
been vital. The Ratio of FDI and foreign trade in the GDP of china has increase from
12% to 34% (OCED 2000). FDI has also lead to increase in domestic competition,
industrial performance, foreign trade and increase market of consumer product. MNE in
china has overtaken the SOE (State Owned Enterprise) as well as they are giving tough
competition to SOE. Through FDI, MNE has overtaken the SOE in manufacturing of
product such as electronic goods, culture and sport goods, leather product. FDI has
also increased the performance of industry in China. These positive performances can
be easily seen in the sector where the share of foreign capital in higher and thus annual
growth rate of industrial performance has increased consistency. The impact of FDI can
also see on the export of labor intensive product and technology intensive product. FDI
has strengthened this China‟s comparative advantage by increasing specialization in
the export of goods which is labors intensive and technology intensive (OCED, 2000).
FDI has also helps to make the diversification in the industrial and ownership of
developing countries and also allow new entrant in the market which has been the part
of competitive structure. Large investment of capital by the MNC in the developing
countries and particularly in the industrial area helps to build the modernization in the
industrial area by domestic investment, higher manufacturing output, higher capital
intensive and labor productivity. Hence impact of FDI can particularly see on the
industrial structure and competitive environment of developing countries (OCED 2000).
The impact of FDI can also see on the coastal and interior provinces of developing
countries particularly in country like India and China. FDI inflow impact can be seen
more in coastal area of country with a higher technology than in the interior provinces of
the country.

There has been also some social impact of foreign direct investment on the many
developing countries of the world. As FDI play a major role in developing and emerging
economy and expectation from FDI for it contribution in the development process of
developing countries has been increased considerably. But there has been some
activities of MNE which has created some controversy and social concerns. For
example MNE are taking advantage by practicing unfair trade and competition over it
competition, consumer and labor. MNE through the way of FDI taking the advantages of
low wages and labor standards. Sometime MNE are also taking advantage of liberal
government policies. There has been many of FDI tat MNE have been violating human
and labor right in the developing countries where government of large and huge
investment done MNE (OCED 2008). Another social impact of FDI that are beneficial to
host countries is by creating high quality job and this high quality job are associated with
higher pay and better working condition. FDI also pay and provide better job profile to
employee than local company and hence it attracts the social condition of employee.
MNC also provide attractive and lucrative incentive to worker and employee to ensure
quality and higher productivity to employee and also try to reduce worker turnover by
minimizing risk over competing firm (OCED 2008). Local firm of developing countries
also learn many thing from the FDI. By collaborating and joint venture with the foreign
firm, local firm learn new marketing and management tactic, supply chain, logistic
techniques etc. and can able to operate their business at international level. FDI also
leads to mobility of skill worker and employee from their domestic firm to foreign firm
and hence able to gain foreign experience and international exposure. In many case,
even though FDI are threaten to local firm but under certain circumstances it increase
the efficiency of local firm, crowding of firm under one roof and also able to operate at
higher level. Hence though FDI has violate some human right or may take some
advantage of huge capital and investment where even government also could not able
to restrict MNC but it also beneficial to local employee by creating better working
condition and environment, higher incentive, wages and also improving better
management tactic of local firm. FDI has also providing higher quality goods and
services to consumer, it also improve standard of living of people in developing
countries as income and purchasing power of people has improved. Hence policy
maker in the countries should design their policies in such way the MNC are able to
invest in capital in the other countries and by minimizing their opportunity to take the
advantages of host countries.

Methodology
FDI is regarded as investment made by the large MNE in developing and emerging
economics of the world and in large 15 – 20 years the investment made the companies
has been increased from 8% in 1990 to 26% in 2006, hence methodology and
technique that researcher has used in their research work is more related to the data
and figure which more regarded to be quantitative method. These researchers has
gathered the different types of variable and data of many countries and of different
years and compared that all variable and data which help the previous researcher and
analysts to measure their variable and data from information they collected. Hence
previously there are different methods used by the different researcher on the impact of
FDI in developing countries. Some researcher also has done research work in impact of
FDI in small island developing state (SIDS). Research done by Read and
Soopromanien (2003) on the impact of FDI on the small island developing countries
was based on the quantitative research method where they analysis the inflow of capital
from developed countries to developing countries. Their research suggest that SIDS
receive lower aggregated volume of FDI inflow as this countries was small in size, low
population and also their national income, investment and per capita income was also
the below expectable level. Similarly, research done by the researcher Read (2008) is
on the regression and correlation method where they compared the independent
variable and dependent variable to investigate the determinant of FDI inflow in
developing state. In the same way, research done by Adewumi (2006) on the impact of
FDI in African countries where he used the empirical data, regression and quantitative
method. They have also used graphical analysis to examine to what extent the FDI has
contributed to economic growth in the African continent. Outcome of some of their
research was that Botswana has been fastest growing economy in Africa due to FDI
inflow. Similarly research done by John Koppisch (2002) was based on quantitative
method on impact of FDI in African economy where he also analysis that Botswana is
one of few countries in African where per capita income of people is more than $6500.

In the similar way, after going through the different method, technique and approach
taken by the different researcher in the study of impact and role of FDI in developing
countries, I would to used quantitative method in my research way. For my research
work I have go through the number of data, figure and graphical presentation and
information of many research work which have been done in the past by the researcher
and scholar. Hence for my research works the information and data which I gathered is
all from the secondary sources. The technique or the approach which I have used is
that I have been through the different empirical data and investigation of different
quantitative expression. Quantitative methodology which I am using in my research
work because it help to develop my investigation on different mathematical expression
of FDI inflow in different countries and different theories implement by the MNE in their
investment approach and also help me to find the connection between the impact of FDI
and on the economic development of countries happen in the past through the study of
the data, figure of that countries.

Data Collection
As FDI and its impact on the global economy is worldwide topic and have done many
investigation and research in the past by the many economists, institution and
universities hence for my research work there are many sources from where I gathered
and collect the information. Hence the first preference which I give for searching the
information for my research work is I have been go through to the different articles base
on the FDI and its impact on the developing countries. These articles provide my
various information about FDI as when FDI become sources of capital for many
developing countries, FDI trend, FDI inflow to various countries and impact and many
other various relevant information. There are also various other sources from where I
could find information for my research work. There many magazine, periodical, website,
books and newspaper like financial time, economic time from where I have find
information on FDI and its impact on the developing country. Magazine on FDI is issue
by financial time business where information about annual average FDI outflow, data on
specific country where investment are done is found easily. Newspaper like FT –
Financial time and Economic time have different articles on FDI inflow and Trend and it
is regarded as one of reliable sources for information. Articles in financial time give the
up to date information on FDI and investment made by different company and in
different sector. There are also many graphical presentations in newspaper which was
very helpful in my research work. There are also many journal and articles which I go
through during my project proposal and plan. The most important journal which I found
during my research is Journal of International Business Studies. In this journal I found
many articles related to FDI and its impact in different countries and continent such as
Africa, Asia and countries like China, Brazil, India etc. In this journal there are also
different articles where they have given the clear case study on FDI and its impact,
evidence and prof which support my research work. Internet is one of main tools to find
any information around the world. Hence website has been of my main sources of
information. Website which I go through during my research work are fdiindia,
fdimagazine, investinindia have many information related to FDI and its investment in
different part of world. OECD (Organization for economic co-operation and
development) is an international organization who deals in research of investment and
GDP of developing countries of world and hence they have information and database
on FDI. There are also many books and notes written on FDI by many author and
scholar hence library is also one of the sources of information for my topic.

FDI is global topic which influences the many economies of developing countries.
Hence information of FDI is easy found but to analysis the data is difficult. Sources of
information for my topic are various but it is difficult to choose the important sources
among the various information available.

Data Analysis
Data analysis is the analysis of different data, fact, information which help the analysis
to come to the conclusion and in decision making. Hence there are various method
which can be used while analyzing data and selecting the method for my topic. There
are various type of data available on FDI while need to be analysis for research work
and to find the accurate results. Data which I research on for my topic are mostly based
on FDI trend, FDI flow, FDI impact, Economic effect, effect on GDP of developing
countries. Hence there are various method can be used for analyzing my data. But I
preferred quantitative method for analyzing my data as help in analyzing the numerical
and statistical data. My researcher and scholar have used different formula and method
for analyzing their research work and data. Some researchers have used regression
method and correlation method for finding the outcome of their research while other has
used formula. But for my research I would use quantitative method as my topic is more
relate to statistical data and figure of investment made by developed countries in
developing countries. I have analysis the yearly data of FDI investment and its effect on
GDP of both countries i.e. developed and developing countries. I have to analysis effect
of FDI on companies, per capita income and economic growth in developing countries.
Quantitative method helps me in analyzing these data and statistic in depth and in
precise way.

Time scale & plan

While making research proposal I have make proper planning and time scale which help
to me to complete my project proposal in the best possible manner. My project proposal
took 3 week to complete and I took one week in finding by data, articles and
information. Proper time management and execution of plan are behind for any
successful achievement. For my research proposal which is like a mini dissertation
require for planning and time management.
Week beginning Activity Type of activity e.g.
literature review, data
collection, data analysis,
writing up
1st Week Aim and Objective of In first week from the
Project, Literature Review information and collection
of data on interest of my
topic i.e. FDI, I begin to
write aim and objective
about my research work
and also on the first half of
literature review
2nd Week Second Half of Literature In the second week I begin
Review and Methodology to write the second half of
literature and methodology.
In this week I elaborate my
topic in more detail and
with some example.
3rd Week Data Collection and Data In the 3rd Week I begin to
Analysis and Final Touch write on data collection and
data analysis as how I
gather information for my
topic and how analysis my
data which are main aspect
for my research. In this
week I have given final
touch to my research
proposal with the proper
reference and conclusion.
Reference
Adewumi. S. (2006) “The Impact of FDI on Growth in Developing Countries: An African
Experience” International Business Studies, pp. 1-21 [Online] Available:
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Amirahmadi. H and Wu. W (1994) “Foreign Direct Investment in Developing Countries”,

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