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Foreign Direct Investment

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Foreign Direct Investment A Prerequisite to Economic Growth (GDP)? GDP Equation GDP = consumption + investment + government spending + (exports - imports) Consumption ... – PowerPoint PPT presentation

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Title: Foreign Direct Investment


1
Foreign Direct Investment
  • A Prerequisite to Economic Growth (GDP)?

2
GDP Equation
  • GDP consumption investment government
    spending (exports - imports)

3
Consumption
  • Total personal consumption expenditure, i.e., the
    purchase of currently produced goods and services
    out of income, out of savings (net worth), or
    from borrowed funds.

4
Soto Increase GDP
  • GDP consumption investment government
    spending (exports - imports)
  • MaybeIncrease consumption.

5
GDP Equation
  • GDP consumption investment government
    spending (exports - imports)

6
Lithuania
7
Lithuania
  • GDP - real growth rate
  • 7.5 (2005 est.)

8
Lithuania
  • Growing domestic consumption (but also a lot of
    increased investment) have furthered recovery.
    Trade has been increasingly oriented toward the
    West. Lithuania has gained membership in the WTO
    and joined the EU in May 2004. Privatization of
    the large, state-owned utilities, particularly in
    the energy sector, is nearing completion.

9
Consumption
  • Note if consumption is of imported items, then
    these figures would cancel in the equation
  • Also could mean spending savings.another
    problem
  • (GDP consumption investment government
    spending (exports - imports)

10
Sothat leaves us with
  • GDP consumption investment government
    spending (exports - imports)

11
Bhutan
12
Bhutan
  • The economy, one of the world's smallest and
    least developed, is based on agriculture and
    forestry, which provide the main livelihood for
    more than 90 of the population.
  • Rugged mountains dominate the terrain and make
    the building of roads and other infrastructure
    difficult and expensive.
  • The economy is closely aligned with India's
    through strong trade and monetary links and
    dependence on India's financial assistance.
  • Bhutan's hydropower potential and its attraction
    for tourists are key resources.

13
Preserving Cultural Values
  • Each economic program takes into account the
    government's desire to protect the country's
    environment and cultural traditions. For example,
    the government, in its cautious expansion of the
    tourist sector, encourages visits by upscale,
    environmentally conscientious tourists.

14
Bhutan
  • Detailed controls and uncertain policies in areas
    like industrial licensing, trade, labor, and
    finance continue to hamper foreign investment.

15
But
  • GDP - real growth rate5.9 (2005 est.)
  • (ranks 199 in GDP per capita, but 71 in GDP
    growth rate)

16
WHY???
  • VERY LITTLE FDI
  • But
  • Cultural reasons
  • Non-materialistic
  • Few imports
  • Exports of lumber to India
  • This goes towards Government Spending on
    Infrastructure

17
Sohow can others replicate this?
  • Dont import goods and especially not services!
  • Become non-materialistic
  • Establish a trade partner that wants your
    renewable natural resources.
  • Spend only on infrastructure.

18
Back to the Real World
19
The Direction of FDI
  • Historically, most FDI has been directed at the
    developed nations of the world as firms based in
    advanced countries invested in other markets
  • The US has been the favorite target for FDI
    inflows
  • While developed nations still account for the
    largest share of FDI inflows, FDI into developing
    nations has increased
  • Most recent inflows into developing nations have
    been targeted at the emerging economies of South,
    East, and Southeast Asia

20
FDI Flow by Region
21
What Encouragers FDI?
  • PREDICTABILITY!
  • Stable countries draw FDI.
  • Even Burma Had FDI amidst corruption (until
    sanctions)
  • Some market reform
  • Communist states can draw FDI
  • Vietnam.

22
  • Legal institutions do play a crucial role in the
    process of market-oriented development
  • by protecting private rights, especially the
    property and contract rights of foreign investors
  • By creating the legal foundations for
    market-oriented reform

23
Conclusions
  • Investor experience suggests that
  • Foreign direct Investment is NOT a prerequisite
    for growth of GDP.
  • Except in the real world.
  • Most of the time.
  • A conventional program of market-oriented legal
    reform is NOT a prerequisite for foreign
    investment
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