FDI IN GLOBALIZED WORLD
NIDHI
Assistant Professor Of Economics, GNDU College ,Chungh Email:[email protected]
Abstract: -Foreign Direct investment plays very important role in the socio -economic development of a nation. The economic liberalizations that swept across the world, particularly since the late 1980s, have significantly changed the environment for international investment. Foreign direct investment has increased tenfold over the last 20 years. This kind of investment brings private overseas funds into a country for investments in manufacturing or services. FDI can bring impressive growth, as in china's coastal provinces, but also instability and economic distress, as during the 1997-1998 Asian financial crisis. Global FDI flows are projected to increase by about 5 percent in 2017, to almost $1.8 trillion. The moderate rise of FDI flows is expected to continue in 2018 to
$1.85trillion -still below the 2007 peak.
INTRODUCTION:-
The World is increasingly becoming interdependent. Goods and services followed by the financial transaction are moving across the borders. In other words, The world has become a borderless world. With the globalization of the various markets, International financial flows have so far been in excess for the goods and services among the trading countries of the world. Foreign investment refers to investment made by the residents of a country in the financial assets and production processes of another country. The effect of foreign investment varies from country to country. It can affect the factor productivity of the recipient country and can also affect the balance of payments.
Foreign investment provides a channel through which country can avail the opportunity to get foreign capital. It comes in two forms :(1) Foreign direct investment (2) Foreign institutional investment (FII).
FDI and FII has played an important role in the process of development of many economies. After the second World War, To mitigate the problems of poverty and unemployment, The Developing countries are making planned efforts to achieve rapid economic growth. After the second world war, The main sources of capital flows were foreign aid from thegovernment of the developing countries and international institutions such as IMF and world bank to the government of the developing countries. But IMF and world bank alone cannot meet the capital needs of the developing countries. Therefore, Capital flows in the form of FDI
and Foreign portfolio investment on private account on a large scale is much needed. A Foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
FDI is not just a transfer of ownership as it usually involves the transfer of factors complimentary to capital including management, technology and organizational skills.
The Forms of FDI includes:-
1) Purchase of existing assets in a foreign country
2) New investment in property, plant, equipment
3) Participation in a joint venture with a local partner
4) Transfer of many types of assets like human resources, systems, technological know -how in exchange for equity in foreign companies
5) Export of goods for equity 6) Through trading in equity OBJECTIVES:-
1)To study the concept of FDI
2)To study the inflow and outflow of Globalized FDI
TYPES OF FDI:-
Strategically FDI comes in three types:
1) Horizontal: - where the company carries out the same activities abroad as at home. For example: Toyota assembling cars in both Japan and the UK
2) Vertical: - When Different stages of activities are added abroad. Forward vertical FDI is where the FDI takes the firm nearer to the market. For example, Toyota acquiring a car distributorship in
America and backward vertical FDI is where international integration moves back towards raw materials. For example, Toyota acquiring a tire manufacturer or a rubber plantation.
3) Conglomerate :- Where an unrelated business is added abroad. This is the most unusual form of FDI as it involves attempting to overcome two barrier simultaneously entering a foreign country and a new industry. FDI can take the form of greenfield entry or takeover.
Greenfield entry implies Assembling all the elements from scratch as Honda did in the UK, whereas foreign takeover means the acquisition of an existing foreign company -as Tata's acquisition of jaguar land Rover illustrates. Foreign takeover is often covered by the term
"mergers and acquisition (M&As)"but internationally mergers are vanishingly small, accounting for less than 1percent of all foreign acquisitions.
FDI INFLOWS:-
[1] In 2016,Global FDI flows decreased by 2 percent to $1,746 trillion. While intercompany loans recorded a fall at global level in 2016, equity investments were boosted by an 18 percent increase in the value of cross - border M&As.M&As rose to $869 billion due to buoyant
activities in developed economies. The Expected increase in FDI inflows in 2017 is already apparent in the values of announced greenfield investments in 2016 and cross -border M&As deals announced in the beginning of 2017.Developing economies lost ground in 2016.Weak commodity prices and slowing economic growth weighed on foreign investment inflows, which fell by 14 percent to $646 billion. In developing Asia, the decline in inflows (-15 percent to
$443 billion) was relatively spread.
Developing economies are likely to see a 10 percent increase in inflows in 2017, while flows to developed economies are expected to hold steady. Among regions, FDI prospects vary.FDI inflows to Africa are forecast to increase slightly in 2017,to about $65 billion, in view of modest rises in oil price and a potential increase in non-oil FDI. Announced greenfield FDI projects in 2016 were high in real estate, followed by natural gas, infrastructure, renewable energy, chemicals and automotive FDI inflows to developing Asia are expected to increase by 15 percent in 2017, to $515 billion in major recipients such as China, India and Indonesia, renewed policy efforts to attract FDI could contribute to an increase in inflows in 2017.
Table 1:-FDI Inflows by group of economies and region, 2014-2016 and projections 2017(billions of dollars and percent)
Group of economies /region
2014 2015 2016 Projections
2017
World 1324 1774 1746 1670 to 1870
Developed
economies 563 984 1032 940 to 1050
Europe 272 566 533 560
North
America 231 390 425 360
Developing
economies 704 752 646 660 to 740
Africa 71 61 59 65
Asia 460 524 443 515
Latin America an49d
Caribbean
170 165 142 130
Transition
economies 57 38 68 75 to 85
(sources©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics)) Memorandum :-Annual Growth rate ( In percent)
2014 2015 2016 Projections 2017
World -8 34 -2 (-4 to 7)
Developed
economies -18 75 5 (-9 to 2)
Europe -20 108 -6 ~5
North
America -15 69 9 ~-15
Developing
economies 4 7 -14 (2 to 15)
Africa -4 -14 -3 ~10
Asia 9 14 -15 ~15
Latin
America and the Caribbean
-3 -3 -14 ~-10
Transition
economies -3 -34 81 (10 to 25)
(sources ©UNCTAD, FDI/MNE database (www.unctad.org(fdistatistics)
Prospects for FDI in Latin America and the Caribbean in 2017, remain muted, Flows are forecast to fall by about 10 percent’s, to some $130 billion .FDI Flows to transition economies are forecast to rise moderately in 2017 to about $80 billion supported by the bottoming out of the economic downturn, higher oil prices and privatization plans FDI Flows to developed countries are expected to hold steady at about $1 trillion. Flows to Europe are projected to recover as the large volume of negative intercompany loan recorded in 2016 is unlikely to be sustained.
Table 2: FDI Inflows, top 20 host economies, 2015 and 2016(billions of dollars)
Countries Ranking (2015) 2015 2016
United States (+) 1 348 391
United kingdom(+) 14 33 254
China(*) 4 136 134
Hong Kong, china(*) 3 174 108
Netherlands (+) 7 69 92
Singapore (*) 5 71 62
Brazil (*) 8 64 59
Australia (+) 16 19 48
India(*) 10 44 44
Russian federation
(*) 25 12 38
Canada(+) 11 42 34
Belgium (+) 15 21 33
Italy (+) 17 19 29
France (+) 9 47 28
Luxembourg (+) 21 16 27
Mexico (*) 13 33 27
Ireland (+) 2 188 22
Sweden(+) 38 6 20
Spain(+) 24 12 19
Angola(*) 20 16 14
(sources ©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics)) Note:(+) sign for developed economies (*)sign for developing economies
Developing and transition economies accounted for 6 of the top 10 host economies. The united states remained the largest recipient of FDI, attracting $391 billion in inflows followed by the United Kingdom with $254 billion, valuating from its 14 thposition in 2015
on the back of large cross -border M&As deals. China was in third position with inflows of
$134 billion - a 1 percent decrease from the previous year.
FDI OUTFLOWS:-
MNEs from developed countries maintained their share of outward FDI in 2016,despite a decline in their investment activity. The flow of outward investment from developed economies declined falling 11 percent to $11 trillion. Nevertheless, their share in global outward FDI flows held roughly stable - dipping to 72 percent from 74 percent in 2015- as outflows from developing economies slipped 1 percent to $383 billion and those from transition economies contracted 22 percent to $25 billion.
These overall trends belie significant shift in outward investment across and within region in a global economic climate characterized by slow growth, weak trade dynamics and low commodity prices.
Investment by European MNEs in 2016, falling 23 percent to $515 billion. This was driven by sharp reductions in outflows in Ireland ( down 73 percent to
$45 billion) ,Switzerland (down 71percent to $31 billion) and Germany ( down 63 percent to$35 billion). The value of cross - border M&As concluded by the continent's MNEs continued to increase, rising 40 percent to $ 435 billion.
Investment by North American MNEs had roughly steady in 2016.The united states remained the world's largest outward - investing country, Although flows declined marginally (-1percent) to $ 299 billion. FDI outflows from Canada posted a similar decline (-1percent to $66 billion), despite the value of Canadian MNE's acquisitions abroad falling 33 percent to
$57 billion. This year was marked by significant variation in outward investment by MNE's from developing and transition economies. Chinese outward FDI surged, rising 44 percent to $183 billion, propelling the country to the position of second largest home country for FDI for the first time.
Outward investment by African MNE's rose slightly (1 percent to $18 billion), largely reflecting a rise in outflows in Angola (35 percent to $11 billion) that more than offset a sharp reductions in Flows from south Africa (-41 percent to $3 billion)FDI outflows from transition economies registered a 22 percent decline, falling to $25 billion, as intercompany loans by MNE's from Kazakhstan turned negative.
Table 3:- FDI Outflows, top 20 home economies, 2015&2016(Billions of dollars)
Countries Ranking (2015) 2015 2016
United States (+) 1 303 299
China(*) 5 128 183
Netherlands (+) 3 138 174
Japan(+) 4 129 145
Canada (+) 9 67 66
Hong Kong, china(*) 8 72 62
France (+) 12 44 57
Ireland (+) 2 166 45
Spain (+) 11 44 42
Germany (+) 7 93 35
Luxembourg (+) 10 50 32
Switzerland (+) 6 104 31
Republic of Korea (*) 17 24 27
Russian federation (*) 15 27 27
Singapore (*) 13 31 24
Sweden (+) 21 15 23
Italy (+) 18 20 23
Finland (+) 186 -16 23
Belgium (+) 14 30 18
Taiwan province of China
(*) 22 15 18
(sources ©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics) Note (+) sign for developed countries (*) sign for developing countries In 2016, as in the previous year,
reinvested earning accounted for roughly half of FDI outflows from developed countries MNE's.The structure of outward
investment flows of MNE's from developing economies was largely dominated by reinvested earnings whose share rose from 45 percent to 66 percent.
The share of new equity investment in outflows attributed to MNE's from developing economies rose (from 43 percent to 47percent) - in line with increasing cross -border acquisitions, principally by Chinese MNE's.
CONCLUSION:-
The moderate recovery in global FDI flows expected in 2017 reflects accelerating economic growth in all major regions, a strong performance of stock markets and a rebound in World Trade volume. The Improving macroeconomic outlook has had a direct positive effect on the capacity of MNE's to invest. The 2017 UNCTAD business survey indeed indicates renewed
optimism about FDI prospects. Unlike in 2016,a majority of executives polled, particularly in developed economies, are confident that the economic upturn will strengthen, bolstering investment in the coming years. The expected increase in FDI inflows in 2017 is already apparent in the values of announced greenfield investments in 2016 and cross-border M&As deals announced in the beginning of 2017.
REFERENCES
1. World Investment Report 2017
2. UNCTAD, FDI/MNE database
(www.unctad.org/fdustatistics)
3. https://www.globalpolicy.org<foreign direct investment >
4. https://www.tutorialspoint.com<foreign direct investment >
5. Economic Environment of business, 7th Revised edition by Dr. H. L AHUJA
