Strategies Essay Example | Topics and Well Written Essays - 1750 words

Strategies - Essay Example FDI is often defined as an accord through which an entity of one economy tends to invest capitals in another economy with the purpose of gaining and simultaneously providing long-term benefits to the parties involved, i.e. the direct investor, direct investment enterprise, and the economies on the whole (OECD, 2009). As is evident from the benchmark definition provided by OECD, FDI ordinarily means the liberty to foreign investor allowing them to set up a production unit through investment in the host country with the purpose to stimulate the means of production in the economy and thus enhance capital allocation (Neuhaus, 2006). It is in this context that the involvement of FDIs in the economic development of the host countries, especially in the case of developing countries has been in debate for decades. In this regard, the foremost concern was drawn on the sovereignty of the state governments and the effects that FDIs had due to growing influences. As stated by Schnitzer (2000), F DIs reward few significant rights to the direct investors in order to operate in the host country with minimal legislative barriers. This influences the monetary policies of the country which in turn affects the sovereignty of the state government as can be observed from the illustration of East European economies, e.g. Hungary, Poland, Czech and others (Schnitzer, 2000). In many instances, FDIs have been witnessed to affect the sustainable development of the host country as well. It is worth mentioning that from a general point of view FDIs are expected to provide the host country with enhanced employment opportunities; thereby reducing poverty and enhancing the overall economic growth. However, it is quite important that the resource allocation is equally distributed in the country to gain total development. But evidences have revealed that FDIs have failed in providing total benefit to the host developing economies (Velde, 2001). To be illustrated in the case of Africa, the FDIs had been recorded to increase significantly as was recorded in 2002. Despite the significant rise in inflows of FDIs in the economies, namely, Nigeria, Tunisia, Egypt, and Algeria, also recorded as the chief direct investment enterprises of the continent, the economic growth has been quite low in comparison to other economies facilitating FDIs, such as Poland, Hungary and other Western economies. The increase of corruptions, extortions and other social issues has also affected the economic growth in these countries. Weak sustainable development can also be witnessed in the case of Latin American as well as Caribbean economies (Gardiner, 2002). FDIs have also proved to be beneficial in many instances, e.g. in the case of China. The inclusion of FDIs in the economy have rewarded with better productivity in the technology sector as well as in the case of human resource development with almost equal distribution of resources. China, as a developing economy had also faced the risk of sov ereignty and other political, economical along with social risks which were dealt with