The Impact of Inward Foreign Direct Investment on Host Countries Essay

The Impact of Inward Foreign Direct Investment on Host Countries - Essay Example According to the research findings, Foreign Direct Investment has over the last three decades aroused conflicting responses from the first and third world. In essence, FDI gives the investor the power to operate a company in another country for the long term. Developed host countries are not too welcome to the idea on the premise that they fear foreign firms will end up dominating their local firms. In contrast to this, developing countries are more welcome to the idea on the grounds that FDI will bring additional capital, expertise and new technology into their country. Host countries record FDI flows as liabilities along with similar items in their balance of payments. In host countries like these FDI flows make up a large percentage of the total investment in the economy as compared to more developed countries; the effects of FDI on these countries differ as well, with developing countries showing a steady growth trend as compared to developed countries who showed boom and bust cy cles as a result of engaging in FDI. Growth is normally measured by looking at the trends in per capita GDP growth. Analysts relate FDI to per capita to GDP growth by looking at figures of gross FDI inflows and FDI inflows per capita to see if they have any impact on the economic growth of a country. Research has revealed a positive relationship between FDI levels and growth levels in an economy, in some cases, these results have been insignificant as well but these variables have never shared a negative relationship. The extraneous variable has a magnitude changing effect on this relationship. It has been seen that the more developed a country is, the better and greater positive effect FDI will have on its economic growth. Most studies that have analyzed the impact of FDI on the economic growth of the host country have found the results to be pretty elusive. Most established relationships are based specifically on the host country’s own specific economic characteristics. Thu s it is difficult to generalize these effects and apply them to other countries as the findings of a study. However, the probable effects are not completely elusive, as the endogenous growth theory provides a framework for the positive linkage between growth and FDI inflows.