Foreign Direct Investment Essay

1211 words - 5 pages

Foreign direct investment (FDI) is becoming a growing global trend undertaken by companies in order to expand their business into multiple countries as well as their domestic base. FDIs have increased across the world over the past 20 years, with outflows of US$241,863m in 1990 to US$2,171,384m in 2007, just before the global financial crisis, an increase of around 837% (OECD, 2014). This essay will look into why certain countries attract more foreign investment than others by looking at a variety of factors, including the growth rates of economies, access to natural resources, political stability, the risks of setting up in a country and more.
The World Economic Forum identifies there to be ’12 pillars of competitiveness’ for a country to be attractive to invest in. The basic requirements begin with the institutions, regarding the legal framework, government attitudes to the markets, regulation and corruption. Next is the infrastructure of the country. This includes a quality road network, rail, ports, airports, electricity supply and telecoms. Health and primary education are also basic requirements needed for a healthy workforce with a basic education. Along with economic stability, all of these are key requirements for a factor-driven economy. To enhance efficiency, higher education and training is necessary for the economy to move up the value chain. An efficient goods market allows for sophisticated customers and the ability to be competitive both domestically and internationally. The country must also have an efficient labour market, financial market and be technologically ready with access to information and communications technology. Along with a substantial market size, all of these factors are required for an efficiency-driven economy. For advanced economies, there is a requirement of high quality business sophistication in the business networks, as well as high levels of innovation with high research & development expenditure, collaboration between universities and industry and protection of intellectual property. Once an economy reaches this stage these are key for an innovation-driven economy. As of the 2013-2014 Global Competitiveness Report, Switzerland tops the rankings with Chad at the bottom at 148th (World Economic Forum, 2014).
Foreign investments are primarily occurring in the rapidly developing economic nations of the world, such as the BRIC countries, as opposed to the already developed nations such as the USA and Western Europe. These developing nations are more attractive markets as they are forecast to have high rates of economic growth (6%pa) and purchasing power over the next decade whereas the more advanced and developed nations are growing more slowly (2%pa) (Hamilton & Webster, 2012). China and India have booming populations which will vastly increase demand in certain markets, particularly in the oil, car and technology markets, and China’s economy is projected to overtake the USA by 2016 (Moulds, 2012). By...

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