Foreign Direct Investment for Developing Countries

This paper illustrates that countries, both developing and developed ones, and multinational corporations, after the liberalization of trade engaged in direct investments across the borders. This period since the 80s has seen most economies participate fully in investments and expansion of their economies through the received inflows and outflows. USA and Japan among other powerful nations have an established past record in their lending and borrowing, which has contributed to their expanded growth over the last three decades. According to UNCTAD, FDI is an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor/ parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). It has been a way of economies engaging in cross-border expenditures to extend their control to limited, but productive assets overseas. Apparently, developing countries FDI flow more than doubled by the end of the 20th century with the increased attraction to the investment. Mallampally and Sauvant record that developing countries share in total FDI inflows rose from 26 percent in 1980 to 37 percent in 1997, and their share in total outflows rose from 3 percent in 1980 to 14 percent in 1997. Research indicates that FDI does generate positive effects to jump-start economies, transfer technology, develop local enterprises and support financial stability for economic development among another positive spillover. The degree of openness for the host country to international global trading is sensitive for decision making to foreign investors. Depending on the type of investment, some direct investors may prefer economies with trade restrictions, while others opt for more open economies.