Foreign Direct Investment in Developing Countries Essay

Foreign Direct Investment in Developing Countries - Essay Example The current global climate relies heavily on the existence of Foreign Direct Investment as a determining factor in the economic growth of any region. However, questions remain as to why there are certain pockets of countries where FDI seems to be flourishing, while others are vying for attention in this regard. There are many statistics that point to this (Vaknin, 2007, np). For example, only one third of the developing and poor nations get any forms of FDIs, and these are perhaps the neediest ones. Also, the contribution of the FDIs in the global economy is not even five percent. Then why is it considered as the next wave of development and a ray of light for poor nations' development FDIs have been strongly criticized for seizing the local talent of a country, preventing local growth, and thereby further reducing the economic development. Alongside, the other political, social and legal ramifications are amongst others in the list of problems associated with FDI (Vaknin, 2007, np). These and other such arguments have been raised in the past at the time when FDIs were being introduced for the first time across the world, and many critics still believe that such actions are leading to overall negative impacts in the long run on the poor countries. Foreign Direct Investment is defined as "investment in domestic structures, equipment and organization by foreign private sector or government. FDI does not include foreign portfolio investment in a domestic economy. The latter refers to investment in equity of domestic companies by foreign economic agents" (Kumo, 2009, np).On the other hand, there are many examples showing FDI as a potential source of success in the economy of a developing country. India for example, has become one of the world's favorite in gaining FDIs (Bhaumik et al, 2003, pp 2 and 3). The IT sector is one of the most prominent examples, which have jumpstarted India's GDP to one of the largest in the developing world. These and many such shining examples are now showing that FDIs can play a very important contributory role in improving the economic prosperity of poor nations. The initial skepticism is now giving way to acceptance and even appreciation of FDIs as research results show improved economic outcomes w ith the introduction of multinational companies and foreign investments over loans.Education is another recently discovered successful area where FDIs are taking place in India. Although critics pose questions about the cons of the education FDI in terms of personal gains instead of the gains for the country, so far, these investments are providing countries with a rope to hang on to, where others are sinking (Bhaumik et al, 2003, pp 4). The number of researches conducted on the beneficial effects of FDIs outnumber those that critic them. FDIs have been so far found to directly improve the financial and educational sectors of a country (Alfaro et al, 2007, pp 7). These countries are termed as the host countries. Researches show that those countries with good links between the final and intermediary industry sectors as well as good human capital are likely to get more FDIs (Alfaro et al, 20