Is Foreign Direct Investment Necessary for Economic Development

The economic development is a classic word that we always hear anywhere because of highly demand of human being. This is primary that economic development could make any country the overwhelming power against poverty. On the other hand, the objective of the economic development is to raise the life-standard of ordinary people. Economic development in other aspects is the prosperity of the country as a result of the expansion of investment. Definition of economic development Economic development, according to Harvard Professor Michael E.

 Porter is the “long-term process of building a number of interdependent microeconomic capabilities and incentives to support more advanced forms of competition. “

These capabilities and incentives, which were mentioned in Porter’s The Competitive Advantage of Nations, 1990,cover the attribute of the materials that small enterprises need to come up with the products and services; the regulations; the level of competition in that sector. Whereas the Council on competitiveness defined that economic development has indefinite word can explain the meaning.

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Term of objectives can be used to enlighten economic development. They give a description of creating businesses, wealth, and also include all the processes that related to enhance the economic system for uplifting the standard’s life. Economic development composes of three crucial points. First of all, policies of the government consistently restrain the inflation and deflation rate as well the job employment for sustainable future. Secondly, policies and facilities provided especially basic infrastructure such as medical services and convey system for low-competitive businesses.

Lastly, policies and campaign offered to improve the competence of the enterprises, for instance, technology transfer, industrial parks, financial aid, business retention and expansion, marketing and others.

The heart of economic development is to increase quality of life by job creation and enhance tax-base. Because of no single word to define the economic development, there is no single policy for reaching economic development. Different countries in different place, condition and background could have a combination set of threads for successful economic development.

Economic development process There are many dimensions to boost for higher-standard life of citizens for instance, social dimension, cultural dimension, educational dimension and many others. The process of economic development is a multi-sided process for the improvement of life-quality includes numerous aspects such as: the development of the social sphere, the development of culture and national creativity, the creation of favourable social climate, social security, labour supply and many others.

Nevertheless, on the priorities of economic development is the creation of a competitive business environment where competition will be the driving force for the development of the companies and therefore the economic development of the country. Another important aspect of the economic development is the development of the consumer’s market, the creation of gold reserves and the development of the infrastructure. All of these are impossible without the technological development of the country.

GDP is one of the indicators of the economic development of the country, nevertheless it is not appropriate to use only this indicator in order to make conclusion concerning the economic development and therefore the well being of the inhabitants of the country. This is primarily due to the fact that GDP cannot measure the development of the leisure time, the condition of the environment, the true ability of people to be free in what they do or say, their confidence in the system of social justice and their opportunity to get education and health care.

At the present moment tough such countries as Latin America, Africa, and Asia are experiencing a certain economical growth no economic development occurs as the number of “vital” needs such as having a place to live, food to eat and a doctor to take care about the health is not growing. The standard of living remain the same and only get worse as the basic necessities are not distributed properly and the population is in a constant stress that results into the work-productivity and therefore on the competency of the company they are working for.

General notions of Foreign Direct Investment (FDI) According to the Economywatch. com, Foreign Direct Investment or FDI is referred to a kind of inflow foreign funds of investment into firms which operate in different countries other than that of the investor. The level of ownership must be at least 10% of original shares classified as FDI which the investor would participate in management, technology transfer and expertise to that forms. Foreign Direct Investment can be categorised in two types: inward foreign direct investment and outward foreign direct investment, up to the fund flow direction.

More about advantages of interdependence between countries read at other essay.

Initially, inward foreign direct investment referred to the investment move to the local resources. Low interest rate, tax-exemption and some supporting policies are the causes of driving the growth of FDI. While outward foreign direct investment is the reversal that called “direct investment aboard”. It is supported by the government in order to lighten the risk. According to Bruce Kogut and Udo Zander, they referred to the theory of the multinational corporation that the important point of FDI which is originated from this theory is the technology transfer not only for domestic but also for international.

They concluded that firms can grow in sustainable way have create new knowledge and transfer them within the firm and across borders. FDI in Asia Regarding to the 2011 UNCTAD World Investment Report, the year 2010/2011 was a world historic record when foreign direct investment in emerging economies gets more FDI than developed countries economies. FT Tilt reported that in the early year investor moves their money increasingly to Asia because of strong economic growth.

Global FDI for one-fifth flow to Asia especially China, Hong Kong and India which are the hi-ranking recipients respectively. Now a day, they are ranked second, forth, and ninth in the world. In 2010, FDI flew to South, East and Southeast Asia around $300bn; especially Southeast Asia that provided supporting rules, political stability and strong economic growth. FDI in 10 Asian countries increased more than twice to $79bn, particularly in Indonesia, Malaysia and Singapore. Table 1: Distribution of FDI flow among economies, by range, 2010 (Source: UNCTAD, 2011)

However, the production cost in China pretty high comparing to some countries in Asian, for example, Vietnam and Indonesia. Low level manufacturing such as mining and infrastructure which cover high amount of FDI moves to these two countries instead of China and India. Nowadays, FDI in China shifted to technology sectors and service sectors, merely invested on real estate alone worth more than a fifth of FDI in 2010, increased to nearly a half in top of year 2011. Whereas, FDI flow in south Asia decreased $32bn in 2009, inclines 31 percent to India, and 14 percent to Pakistan.

The main reasons of inclination FDI to India are the economic concerns, for instance, a high current account deficit and the slow process of large FDI projects as well as corruption issues. With reference to UNCTAD note, FDI inflow in East Asia still continues and South Asia will gain this result. Future more FDI would be expected in Southeast Asian as a result of low-cost production which is the strong point of this region. Figure [ 1 ]: FDI outflows, 2000-2010 Figure 2: FDI inflows, 2000-2010 (Sources: UNCTAD, 2011)

On the other hand, the FDI of Asia still strong, led by China, Malaysia, Korea, Singapore and Taiwan, big and thriving companies invested much money in mining and communication sectors. Asia countries shared Global FDI around 17% in the past two year, China is the fifth biggest FDI’s source in year 2009 and 2010, follow by India at no. 20. UNCTAD anticipated based on expressed interest in overseas investments that China, India, Indonesia, Thailand and Malaysia are tend to flow vast amount of FDI in 2011-2013.

Whereas, a lot of companies confront the political hurdle in order to meet the FDI agreement that may be play an important role in the near future. FDI in Thailand Ever since the 1960s, Thailand reached the best practice to their role of developing countries which can sustain 8-9 percent economic growth rates in high level during 30 years period. Afterwards the market had achieved a remarkably large amount as in 1970 about four times previous to the disaster that cause an entire world facing peak oil crisis cyclical downturn in response to Thai exports, terms of trade shocks and infrequently high real interest rates.

Throughout the past three decades, Thailand inexperienced of negative development evens a year and became the world’s highest rate in the economy growth in the summer of 1997. Since mid-1980, the Thai export has been moving toward a new growth as primary rice exporters of the world and has expanded manufactured supplies export to over 80 percent in 1980 from only one third of total exports by 1997. Not only in 1960, agri-industries was almost three times size of manufacturing, but also less than half as significant as manufacturing in beginning of 1990s.

The structure of Thai economy is apparently changed in exports sector left from agriculture and into industry. Mid-1980s was the entry of much foreign investment even as a quantity of human resource in Thailand was insufficient which much less important than neighbour, Malaysia. Even though the Government commonly agree with foreign investors focused on agriculture industries, attracting FDI was not a priority.

And the Thai domestic capital had much potential to control its economy in an initial stage of its progress as the Government try to protect the domestic industries against international competition by encouraged import substitution in consequence of much of this production. Foreign investors remain leaned towards interested in those divisions. The situation changed in the second half of the 1980s because Thailand gained he benefit from the advantages of currency appreciation at that economic period since Chinese, Taipei, Japan and other surrounding nation economic rearranged an enormous production to Thailand same as in Malaysia.

Whilst and production costs level were increasing particularly in place labour costs and main export markets were lack of the value of preferential market access. Nevertheless, due to these immense influxes it also issued the local exact guiding principle setting to control and to facilitate although there was the right place at the right time undoubtedly.

Important conditions were a growing emphasis on outward looking policies and sound macroeconomic stabilisation policies. Bank of Thailand (BOT) represented a historically information found on actual FDI inflows through the various division that in 1997 it grew duplicate in baht terms and then in 1998 increased by another 64 percent. It can be claim that the foreign investors sector of Thai market after economic crisis point towards a sustained strong interest trends.