Foreign direct investment (FDI) leads to economic growth, and economic growth leads to poverty reduction: this line of reasoning forms the foundation of contemporary thinking about FDI. FDI may be beneficial to the economy, but FDI flows may be very different in qualitative terms. Governments therefore face a two-fold challenge: to attract FDI and to secure benefits from these flows. There is a degree of overlap, as well as potential contradictions, between these policies. However, this paper focuses on the first challenge, i.e. how countries can really attract investment. The first challenge has not been met in large parts of the world. The vast majority of FDI is still focused in ten developing countries which have remained much the same over the last decade. A vast majority of countries do not even appear on the investor's map. Part of the explanation for this may be that the returns to be made in these countries are too low to be of any interest to investors. More likely, the perceived risks of investing in these countries are too high to make otherwise attractive investment opportunities worthwhile. All stakeholders have a role to play in improving the spread of FDI over the globe. Efforts by host countries need to be complemented by efforts by home countries, donors, international organizations and businesses themselves. Civil society has a role to play in calling for policies that conform to the social and historical characteristics of the country and monitoring the implementation of policies.
Since the 1990s, several nations have had a growing concern with regard to attracting FDI, leading to increasing competition among countries for those investments. Developing countries are the main competitors in this battle, as several emerging economies have based their strategies for industrialization on MNCs.
ABSTRACT:
STATEMENT OF RESEARCH QUESTION:
"Comparative analysis of different policies attracting Multinational corporation's investments in China and India"
The choice of these large developing countries stems from their success in attracting a significant amount of foreign investments, through effective policymaking.
The questions which immediately arises relative to my research and which I would like to answer are as follows:
How countries can attract FDI and what is the motivation for foreign investors to invest abroad?
Do countries need to transfer resources to promote inward FDI or should they improve economic fundamentals?
What are the determinants of FDI and in India and China?
What are the problems and issues regarding foreign investment?
What are the administrative barriers to foreign investors in India and China?
How FDI can enhance the local competition in the host country?
What are the countries developmental objectives in order to attract FDI?
What are the effects of policies on host country?
What lessons can India learn from china in attracting foreign investment?
What is the policy regulatory frame work and how policies can be implemented?
THEORETICAL RATIONALE:
Based on the international trade theory comparative advantage of the host countries are identified as most important determinant of FDI. Later this approach declined slowly as it failed to explain why countries choose FDI rather than cooperating or licensing. Hymer (1976) explained that reduction of rivalry in international markets, exploiting monopolistic advantages and diversification of risk are the reasons to choose FDI and postulated that FDI is attracted depending on the global market environment. As per internalization theory (Rugman, 1986), foreign investments internalize transaction costs to improve profitability. Buckley and Casson(1976), Williamson(1986) claimed that when assets are intangible, internationalization reduces the transaction costs.
In this research I would like to adopt OLI electric paradigm developed by Dunning (1980, 1995) which explains FDI emerges due to ownership, internationalization and location advantages. Location advantages determine which country to be chosen for investment. They can be country's factor endowments (Ex: capital, labor, technology, and natural resources, transportation and communications, infrastructure and its market size), Social factors (language, ethnicity, business customs and culture) and political advantages such as government's transparency and policies like trade barriers and investment regulations (Dunning, 1980; Eden, 1991).
EXPECTED IMPLICATIONS FOR THE ORGANISATION:
Know the relationship between the globalization and foreign direct investment.
Identify different types of measures to attract inward FDI and factors affecting foreign investment.
Understand the competition between developing countries to attract foreign investment and their development objectives.
Role of policy in making FDI work for the growth and development of the India and China.
Understand international expansion of activities by transnational corporations through FDI.
Examine the appropriate policy framework to implement them.
HYPOTHESIS TO BE TESTED:
To answer the research question the hypotheses that are to be tested are the following:
Countries at different stages in their development need different type of policies to attract inward FDI.
Countries consisting of better infrastructural facilities and business friendly environment, receive more FDI compared to others.
Countries with higher GDP growth rate and higher per capita GDP are more likely to receive larger amount of FDI compared to others.
FDI enhance local competition
Property rights and contract enforcement affect FDI
DATA SOURCES AND JUSTIFICATION FOR CHOICE:
UNCTAD:
UNCTAD (United national conference on trade and development) organization functions as a forum for intergovernmental deliberations. It undertakes research, policy analysis and data collection for the debates of government representatives and experts and publishes them. UNCTAD compiles, validates and processes a wide range of data collected from national and international sources. Through UNCTADstat, free access to comprehensive statistical time series and indicators essential for the analysis of world trade, investment, international financial flows, and development can be done. We can access investment policy reviews on different countries and world investment reports.
OECD:
OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems. It`s publications are a prime vehicle for disseminating the Organization's intellectual output. OECD publishes regular outlooks, annual overviews and comparative statistics. Among them:
OECD Economic Outlook assesses prospects for member and major non-member economies.
OECD Factbook is a key reference tool for everyone working on economic and policy issues.
OECD Economic surveys provide individual national analyses and policy recommendations.
Going for Growth presents comparative indicators and evaluations of national performance.
OECD iLibrary online service is used to access the publications. Through OECD.stat we can get access to most of the OECD statistical databases.
World Bank:
http://www.worldbank.org/reference/images/spacer.gifProvides access to the World Bank's formal publications, including the acclaimed World Development Report and a range of books that cover the full spectrum of economic and social development. World Bank Policy Research Working Papers is a collection of policy research working papers, policy research reports and world development reports in the World Bank's Archives. Doing Business provides objective measures of business regulations and their enforcement across 183 economies. FDI.net is used to access information on FDI.
Other sources:
Government publications include annual reports, reports of various ministries. Reports of ministry of information technology, ministry of commerce and finance ministry would give us an indication of latest investments, FDI flows and about the changes the in the policies. Regular publications include papers, magazines, and journals. Prominent and globally regarded sources like economist, financial times, business week would assist in getting a global opinion and significance with respect to global scenario. It is also easy to get access to this data source. These would also let us know the opinion of the industry leaders over various key developments and issues. Academic text books are most easily available and well compiled source of data. It is valuable data as the authors are distinguished academicians and their works are result of years of research, observation and study. They are available in library and e-resources.
PRELIMINARY LITERATURE REVIEW:
RESEARCH DESIGN:
"He, who fails to plan, plans to fail." Without creating the proper plan to do the research, it is difficult to reach the objectives. I divided the allocated time period of 6 months logically as shown in the research plan below. Firstly, different policies employed by government and competition between the developing countries to attract inward investment are studied. Secondly, the factors that attracted MNC's in India and China are studied and a comparative analysis is made. Thirdly, the work continues with the study of implementation of policies and finally conclusions and recommendations are drawn based on the overall analysis.
Research Plan:
Understanding the Research topic
(1 week)
Identifying the issues that need to be addressed and the objectives to be met
Formulating a hypothesis for achieving the research goals
(2 week)
Review on literature work
(2 weeks)
Identifying the secondary Data sources
(5 weeks)
Theorizing and developing the conceptual framework to test the hypothesis stated
(1 week)
Develop theories using conceptual framework that explain patterns and connections in research material
(4 weeks)
(3 weeks)
Interpreting and analyzing research material
Compilation of the results for the stated & tested hypothesis
(3 weeks)
Framing arguments and preparing the documentation
(2 weeks)
Developing conclusions and recommendations
(1 week)
METHODOLOGY TO BE EMPLOYED:
I would like to choose qualitative research and analysis methodology to answer the proposed research question. Desk based research, where secondary data is used forms the main basis for the research. In order to collect the necessary information to meet the objectives and to test hypothesis, the research process is spilt in to three parts.
Documentary analysis is done by collecting information from journals, government publications, textbooks, information and statistics provide by international organizations (Example: UNCTAD, OECD, World Bank etc) and other resources to understand the policies to attract FDI. The journals are accessed through Aston e-library and other internet sources. Data streaming which is available at library is also used to collect information on countries.
Case studies on India and Brazil are employed in order to understand different policies implemented by their respective governments to attract foreign investment.
Comparative analysis is done between India and Brazil to answer the research question by interpreting the information from the above study.
ETHICAL CONCERNS:
As it is a qualitative research not many ethical issues are involved but care should be taken not to violate the copyrights reserved for journals and published books and reference should be given to all data that is adopted from other sources in compliance with Aston Business School rules on plagiarism and collusion. This research will comply with research ethics in terms of accurate transcription of data and findings such that the data will be processed fairly and lawfully. Ethics also involve not obtaining information through illegal or restricted procedures. There should be openness and honesty in communicating information about the nature of this research to all interested parties. It is also a courtesy to acknowledge all the people who contributed towards the research work.
