Foreign Direct Investment

A. T. Kearney (2001) pointed out that bureaucracy, corruption, poor infrastructure, rigid labor laws and regulations, red tape, the sluggish pace of economic reforms, and the Indian government’s role in the economy were the major reasons behind the lower FDI flows into India.
What is FDI? How does FDI induce economic growth?
Foreign direct investment is an investment by a company in a foreign country by acquiring some assets and gaining the right to do and own a business. Different international organisations and different countries follow different definitions and include different elements. For example certain countries calculate reinvested money to be the part of the FDI and some don’t.
There are broadly two different types of FDI vertical and horizontal. Vertical FDIs are efficiency seeking FDIs, these investments are made in order to exploit the factors of production such as cheap labour, low cost of capital and cheap land. Horizontal FDIs are market seeking FDIs, the aim of these kinds of investments are to exploit the domestic market of the host country. These investments are generally made in order to substitute export and a desire to locate the production process near the consumer. Both of these types of FDI affect growth of an economy but the channels through which they affect the growth differ. According to (The impact of horizontal and vertical FDI on host’s country economic growth Sjoerd Beugelsdijk, Roger Smeets, Remco Zwinkels) both horizontal and vertical FDI have significant positive impact on developed countries, though the growth-effect of Horizontal FDI is 50% greater than vertical FDI.
The economists and policy makers of the developing economies who are concerned with the development of the economy are more interested in finding ways in which FDI can be attracted to the Developing countries. The main 2 fold benefit aimed to derive from it are foreign capital inflow which are relatively stable and to upgrade the technology....