Promoting Foreign Direct Investment

June 29, 2010Foreign Direct Investmentby EconomyWatch


Promotional efforts to attract foreign direct investment (FDI) have become the important point of competition among developed and developing countries. This competition is also maintained when countries are adopting economic integration at another level. While some countries lowering standards to attract FDI in a "race to the bottom," others praise FDI for raising standards and welfare in recipient countries.

There are several trends, which are reinforcing traditional impulses for foreign direct investment that is access to natural resources, markets, and low-cost labor. With the rise of globalization technological progress allows for the separation of production into more discrete phases across national barriers. Expansion in Information and communication technologies, Improvement in logistics necessarily allow production to be close to markets while taking advantage of the specific characteristic of individual production locations.

Countries have adopted their respective policies for attracting more investment. Some countries rely on targeted financial concessions like tax concessions, cash grants and specific subsidies. Some countries focus on improving the infrastructure and skill parameter and creating a base meet the demands and expectations of foreign investors. Others try to improve the general business climate of a country by changing the administrative barriers and red tapism. Many governments have created state agencies to help investors through this administrative paperwork. Finally most of the countries have entered into international governing arrangements to increase their attractiveness for more investment.

"Better Investment Climate" Need of the Hour.

Sound investment climate is crucial for economic growth. Microeconomic reforms aimed at simplifying business regulations, strengthening property rights, improving labor market flexibility, and increasing firms' access to finance are necessary for raising living standards and reducing poverty in a country.

Reform is necessary for creating an investment-oriented climate. Reform management matters as investment climate reforms are done politically. They often favor unorganized over organized groups and the benefits tend to accrue only in the long term, while costs are felt up front. Political decisions play a significant role in this context.

Each and every countries over the globe are stepping forward to change the climate for attracting more investment. Opening up of doors by most of the nations have compelled them for adopting reforms.

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