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A Snapshot of Foreign Direct Investment (FDI) with Recent Trends Worldwide

Jha, Hem Chandra; Ghosh, Jagannath

Abstract

FDI indicates net inward flows of investment to achieve a long lasting management interest operating in a nation other than the nation of the investment. FDI may be of 2 types as inward FDI and outward FDI. Foreign direct investor might take place through creating a wholly owned subsidiary or company, engaging in an equity joint venture with another organization, or through merger/acquisition of an enterprise. Organizations are considering FDI as a way to be globalised. It ensures that companies are closer to their demanded consumer market. It assists in economic development of that nation where the investment is applied and has rescued several countries facing economic down turn. Inward FDI has good effect for job creation-employment for host countries with resource transfer. If a province has huge natural resources, it makes investors invest in that country. Its population plays a vital role for pulling FDI. Major determinants of FDI are size of the host country, future growth prospects of the economy, infrastructural facility, cheap labour force etc. Again if there is high per capita income of that nation or if the people have sound spending capabilities then it will pull high FDI. In 2010 and 2009, FDI was $1,122 billion and $1,114 billion respectively. World's largest receiver of FDI is US whose total figure of FDI has been $194 billion in 2010.25% of FDI in U.S came in 2010 from France, Japan, UK, Canada, Switzerland, Netherlands etc. China is next largest recipient of FDI. It has reached $185 billion in 2010. India is destination for FDI after China. Telecomm, electronics, construction, automobile, and computer attract most inflows. Significant sources of FDI are Mauritius, Singapore, US and UK. FDI in Europe increased in this decade. Extent of European FDI projects in 2010 topped with 14% increase reaching 3,757 FDI project announcements. UK and France remain leaders in Europe in FDI context. Promotional effort to bring FDI is the trend of every nation. Many countries liberalise their standards/economic policies to pull FDI.

Credits go to the expansion in IT, communication technologies and logistics. These allow production to be close to markets utilising advantage of the particular features of several locations. Many nations offer financial benefits like cash grants, tax concessions, and emphasise on modifying the skill parameter, infrastructure and form a platform to meet the demands and expectations. Keywords: FDI, investment, inflow, US, trend, growth Introduction

Foreign Direct Investment or FDI indicates the net inward flows of investment to achieve a long lasting management interest operating in a nation other than the nation of the investor. It may be in the form of equity capital, long-term capital, and short-term capital etc. It consists participation in management, sharing of man power, joint-venture, transfer of technology and skills/expertise. FDI may be of two types as inward foreign direct investment and outward foreign direct investment. These two FDIs result in a net FDI inflow which may be positive or negative. These also determine \for a given period. Foreign direct investment does not include investment through purchase of shares. FDI is considered as an example of international factor movements.

Materials and Methods

For the purpose of in depth study the contents have been taken from relevant books, articles, journals and websites. The method used is analytical and descriptive. Both primary as well as secondary sources of information have been taken. Results and Discussions

Types of FDI

1. Horizontal FDI : It takes place when an organisation copies its home countrybased activities in a host country at the same value stage through Foreign direct investmenty.

2. Vertical FDI: It happens when an organisation goes upstream or downstream in different value chains through FDI. It also takes place when companies execute valueadding activities gradually in a vertical fashion in a host country.

Methods of FDI : The foreign direct investor might take place through the following methods:

By creating a wholly owned subsidiary or company

Engaging in an equity joint venture with another investor organisation. Through merger or acquisition of an enterprise.

Trends of FDI : Generally FDI is propagated at developing countries as companies from advanced economies invested in other markets. US captures most of the FDI inflows. While developed countries still are considered for the largest proportion of FDI inflows. According to data, the stock and flow of FDI has raised and it is going towards developing countries, especially in the emerging economies world wide.

Also many companies and organizations are now considering FDI as a way to be globalised. FDIs permits corporations to avoid government pressure on local production and cope with measures by handling trade barriers. The move also ensures that companies are closer to their demanded consumer market, especially if companies establish locallybased sales offices.

Benefits of FDI : The major advantage of foreign direct investment is that it assists in the economic development of that nation where the investment is applied. This logic is more applicable for developing countries. FDI has been one major external sources of finance for maximum nations that were developing economically. It is also true that foreign direct investment has rescued several countries when they encountered economic down turn. For example, during the 1997, Asia suffered from financial crisis. The foreign direct investment made in these countries during this duration was steady yet. But other forms of cash inflows suffered a lot. Same thing happened in Latin America in the 1980s and in Mexico in 1994-95.

Inward FDI has the good effect for job creation and employment for host countries. It also results in higher wages. Other benefits of FDI are resource transfer, in terms of capital and technical knowledge. In this century, FDI is used as a strategy of new market entry for investors as well as an investment strategy. FDI growth has increased at a higher rate than the level of world trade. Globalization has made the