The Why and How of Cities Worldwide Competing in a Race to Attract Investments
The Global Race Between Cities for Investments Cities worldwide are in a global race for investments and this is being driven by economic, political, demographic, and social reasons. Considering the fact that the future of the world would be urban and cities would be the engines of the global economy, it is not surprising that […]
Why are Oil Prices Changing Gears?
The international oil market is known to be volatile. Ever since oil was first found, the market is known to have many boom-bust cycles. A perfect example of the same can be seen in the recent changes in the price of oil. Till September 2018, the prices of oil were on an upward trajectory. However, […]
Decision Support Systems Introduction, Categorization and Development
When it comes to good decision making, relying too heavily on automatic decisions stemming from perception or depending too much on conventions when information is bombarded on to us from all sides can be dangerous. Sometimes, you fail to either notice or seek out crucial information that supports decision making. This may be because of […]
Customs Department – An Introduction
International Trade is facilitated and controlled by Countries with the help of Foreign Policy, Export Import Regulations, Schedule and Tariff of Import and Export Duties as well as Trade Laws and Regulations. Customs Department is the Federal Government Agency that is invested with Authority to conduct Customs Valuation and collect Import as well as Export […]
Should Corporates Implement Affirmative Action as a Means of Ensuring Social Justice?
What is Affirmative Action and does it Help or Hinder the Goals of Social Justice? The United States has a policy of what is known as Affirmative Action on campuses across the country to actualize Social Justice and to empower historically disadvantaged and disaffected communities. Affirmative Action is a term which indicates how members of […]
FDI or Foreign Direct Investment is the practice of international businesses investing in countries other than their home country. In recent months, there has been much debate over whether opening up of economies to foreign direct investment is good for developing countries.
Further, foreign direct investment is seen by many old timers as surrendering the sovereignty of the country though the younger generation views it as a blessing for the economy.
Whatever be the stance, it cannot be denied that with the global economy being integrated so tightly, developing countries have no choice but to allow foreign direct investment. However, they can have some restrictions on which sector to invest and how much profit can be repatriated.
Many developing countries do not have the necessary resources at their disposal to develop some sectors and hence, they permit foreign capital to invest in these sectors. Of course, they also ensure that sectors like defense and other sectors that have national security implications are kept off the list of sectors in which foreign direct investment is allowed.
For many countries, opening up of their economies results in benefits since they need the dollars as well as because they might not have the expertise to commence productive activities in these sectors.
Finally, foreign direct investment can be used to pay for expensive imports and encourage exports as well. After all, every developing country (except those with large oil reserves) needs to pay for its oil imports in dollars and hence foreign direct investment helps to earn precious dollars.
There are many downsides to allowing Foreign Direct Investment into the developing countries. However, the developing countries benefit because of inflow of dollars and much needed capital, which is not available domestically, there is scope for outflow of dollars as well since the foreign companies typically repatriate a part or whole of their profits back to their home countries. This is the reason why developing countries must think twice before allowing blanket foreign direct investment. To circumvent this, many developing countries typically restrict foreign direct investment into sectors that badly need capital and where the developing country does not have expertise.
Further, the fact that many developing countries have capital controls on the capital account (which is to restrict wholesale repatriation of both profits and investment) and relax the current count where only profits and that too a percentage of it is repatriated.
The key point here is that no country can be isolated from the global economy in this day and age. Hence, it is in the interest of developing countries to allow foreign direct investment though some safeguards can be put in place as discussed above. Of course, the best path would be to not have a blanket ban on foreign investment nor to allow 100% foreign investment.
In this respect, countries like India and China have showed the way on how to attract investment and at the same time not fall prey to the phenomenon of capital flight that happened to East Asian economies in 1998.
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Cross Border Mergers and Acquisitions and Some Recent Trends in this Field
February 12, 2025
