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Overview of foreign direct investment in china economics essay

Foreign direct investment FDI is one of the economic growth stimulus due to its associated variables such as capital investment, technical know-how, knowledge transfer and managerial competence required for economic growth. In the last decade, China has emerged on the international financial scene as both financier and investment partner to African economies. However, it exerts different effects on value added in the three economic sectors. F21, F36, F43 1. It is undoubtedly true that FDI has been playing increasing role in the three major economic groupings — developed countries, developing countries and the transition economies of South-East Europe and the Commonwealth of Independent States CIS.

According to the report, the 2007 FDI growth was largely due to relative high economic growth and strong corporate performance in many parts of the globe especially in developing countries. The region has thus seen seven years of uninterrupted growth. Among developing and transition economies, the three largest recipients were China, Hong Kong China and the Russian Federation.

Booming commodity markets, rising profitability of investments — the highest among developing regions in 2006-2007 — and improved policy environments fuelled inflows.

Least developed countries in Africa also registered another year of growth in their FDI inflows. A large proportion of the FDI projects launched in the region in 2007 were linked to the extraction of natural resources. TNCs from Asia concentrated mainly on oil and gas extraction and infrastructure. Developing and transition economies have emerged as the new FDI powerhouses both as recipients and as outward investors.

For the first time in 2010, they absorbed more than half of global FDI inflows and occupied half of the top-20 host economies for FDI inflows.

Their outflows also increased strongly by 21 percent accounting for 29 percent of global FDI outflows thereby granting them six spots on the list of global top-20 investors.

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As part of the risk factors contributing to the reshaping of global FDI landscape are the unpredictability of economic governance, a possible widespread of sovereign debt crisis and fiscal and financial sector imbalances in some developed countries. On the other hand, economic dynamism and strong role being played by both developing and transition economies in international economic development during and aftermath of the global financial and economic crisis of 2008-2009 has been beneficial to these economies.

However, Africa continued its downward trend for a third consecutive year 4. Even though Africa continues to attract marginal percentage of global FDI flows, distribution is skewed towards resource endowed countries like Angola, Egypt, Nigeria and South Africa which accounted for 61.

  1. Markussen and Vernables 1998 , discussed that the impact of FDI on economic growth is realized through trade. FDI may also bring in expertise that the country does not possess, and foreign investors may have access to global markets.
  2. All things being equal, the given indicators indicate that the presence of prospective FDI in the Ghanaian economy, irrespective of where its coming from should contribute positively to the Ghanaian economic growth.
  3. However, it exerts different effects on value added in the three economic sectors. Sectors contribution to GDP as at 2010 were services 48.
  4. A large proportion of the FDI projects launched in the region in 2007 were linked to the extraction of natural resources.
  5. FDI may also bring in expertise that the country does not possess, and foreign investors may have access to global markets. Booming commodity markets, rising profitability of investments — the highest among developing regions in 2006-2007 — and improved policy environments fuelled inflows.

The discovery of oil deposits in commercial quantities and value have accorded Ghana great potential of moving from a predominantly import-dependent country to an export one with streams of FDI flowing into the economy. The stable political atmosphere in Ghana has prompted the country to actively embrace the policy strategy prescribed by the international organizations such as International Monetary Fund IMF and World Bank. Sectors contribution to GDP as at 2010 were services 48.

All things being equal, the given indicators indicate that the presence of prospective FDI in the Ghanaian economy, irrespective of where its coming from should contribute positively to the Ghanaian economic growth.

The paper is organized as follows: Literature Review on FDI and Economic Growth According to Alemayuhu 2002the theory regarding the determinants of FDI encompasses a wide range of thoughts including the product cycle theory Vernon, 1966; Krugman, 1979the pure capital movement theory Iversen, 1935 and Tobin 1958 both cited in Agarwal, 1980; MacDougal, 1960 and the stagnation thesis of radical economists Baran and Sweezy, 1966; Magdoff, 1992.

However, as discussed by Jenkins and Peters 2006 it is important to access FDI with regards to motivation such as market-seeking, natural resources-seeking or efficiency-seeking. This is very important from Sub Sahara African studies perspective since it helps to bring to bear the relative importance and purpose of FDI from both Chinese and Western sources.

It is sometimes explicitly or implicitly linked to achieving strategic objectives than focusing on profit maximization. Foreign direct investment and its transmission into growth has attracted a number of studies.

  1. All things being equal, the given indicators indicate that the presence of prospective FDI in the Ghanaian economy, irrespective of where its coming from should contribute positively to the Ghanaian economic growth.
  2. It further explains that new technologies and FDI benefits from technology diffusion can only be absorbed by countries that have reached a certain level of income.
  3. In their empirical work to study the relationship between FDI and economic growth in Malaysia for the period 1970-2005, Wai-Mun et.
  4. The stable political atmosphere in Ghana has prompted the country to actively embrace the policy strategy prescribed by the international organizations such as International Monetary Fund IMF and World Bank. As part of the risk factors contributing to the reshaping of global FDI landscape are the unpredictability of economic governance, a possible widespread of sovereign debt crisis and fiscal and financial sector imbalances in some developed countries.
  5. In fact, he found that increasing aggregate investment by 1 percentage point of GDP increased economic growth of Latin American countries by 0.

Theoretically, models of endogenous growth has been combined with research work on technology diffusion to lay emphasis on the important role played by FDI in an economy Lucas, 1998; Barro, 1990. Findlay 1978 argued that foreign direct investment increases the rate of technological progress in the host country through contagion effect from the more advanced technology and management practices used by foreign affiliates.

It further explains that new technologies and FDI benefits from technology diffusion can only be absorbed by countries that have reached a certain level of income. Their earlier study unearthed human capital as one of the reasons for the differential response to FDI at different income levels as it takes well-educated population to understand and spread the benefits of new innovations within an economy.

  • De Gregorio 2003 , while contributing to the debate on the importance of FDI, notes that FDI may allow a country to bring in technologies and knowledge that are not readily available to domestic investors, and in this way increases productivity growth throughout the economy;
  • De Gregorio 2003 , while contributing to the debate on the importance of FDI, notes that FDI may allow a country to bring in technologies and knowledge that are not readily available to domestic investors, and in this way increases productivity growth throughout the economy;
  • Theoretically, models of endogenous growth has been combined with research work on technology diffusion to lay emphasis on the important role played by FDI in an economy Lucas, 1998; Barro, 1990;
  • In fact, he found that increasing aggregate investment by 1 percentage point of GDP increased economic growth of Latin American countries by 0.

Bosworth and Collins 1999 [1] showed in their analysis of 58 developing countries over the period 1979-1995 that an increase in capital inflows especially FDI is associated with an increase in domestic investment with an estimated coefficient close to one.

This signifies that FDI as one of the components of capital flows brings about a one-to-one increase in domestic investment indicating a contribution to growth. De Gregorio 2003while contributing to the debate on the importance of FDI, notes that FDI may allow a country to bring in technologies and knowledge that are not readily available to domestic investors, and in this way increases productivity growth throughout the economy.

FDI may also bring in expertise that the country does not possess, and foreign investors may have access to global markets.

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In fact, he found that increasing aggregate investment by 1 percentage point of GDP increased economic growth of Latin American countries by 0. Markussen and Vernables 1998discussed that the impact of FDI on economic growth is realized through trade.

In their empirical work to study the relationship between FDI and economic growth in Malaysia for the period 1970-2005, Wai-Mun et. The above literature indicate that all things being equal well guided Chinese FDI, being it public or private, would lead to growth in the Ghanaian economy thereby bringing about poverty reduction through job creation and income generation.

Real GDP per capita is a good indicator for assessing the standard of living in an economy. Inward FDI Trend and Performance in Ghana FDI Performance Index Free flow of capital across country borders allows capital to seek out the highest rate of returns and according to Feldstein 2000comes with several advantages which include reduction of risk faced by owners of capital thereby enabling them to diversify their investment and lending portfolios; limitation of the abilities of governments to pursue bad policies; and the spread of best practices of corporate governance, accounting rules and legal traditions.