Foreign Investment In Low-quality Countries Economics Essay

In this essay I will be speaking about and arguing whether international investment is good / bad for poor countries and whether it will always be welcomed by them. Within the text I am discussing the idea behind overseas investment, whilst highlighting the various benefits and drawbacks of the process and implications for the poor host country. I'll then backup the idea with past examples of foreign investment used, that may then lead me to summarise and assess whether poor countries should always welcome it.

First I will explain exactly what is meant by an unhealthy country so that it's comprehended throughout the article when relating to examples etc. Poor countries, aka under-developed or growing world countries, are described as 'the less economically advanced countries of Africa, Asia, and Latin America collectively' (Collins Discovery Encyclopedia, 2005); this is assessed by the income per brain of populace of the country involved. Among the poorest countries in the world today are Zambia, Afghanistan, Sierra Leone and Bangladesh, however all these poor countries are labelled poor for different reasons e. g. politics, economical, moral and technological issues within the countries.

Second I will explain exactly what overseas investment is. You will discover two types of foreign investment which variably have an impact on all parties in various ways - one of which is foreign immediate investment (FDI). One explanation of FDI describes it as 'one that provides the entrepreneur a controlling curiosity about a foreign country' (Daniels et al, 2007, p20), while another source considers it as 'a company from one country making a physical investment into building a manufacturing plant in another country' (http://www. going-global. com/). Whilst I really do feel both meanings are valid and explain FDI well, the second description is more suitable in my eyes as it illustrates exactly what FDI is and actually states a company is 'committing' in building in a international country instead as just viewing it as an 'interest'.

FDI can take place either separately, where there's only one company in an investment, or a jv, where 'two or more companies share possession of your FDI' (Daniels et al, 2007, p20). Quick examples of both these purchases involve the Japanese businessman Yamauchi's specific ownership of the Seattle Mariners North american baseball team and Disney's joint venture with the Hong Kong federal government to create a Disneyland theme recreation area in Hong Kong. If company/companies gets the majority of control of an FDI and the rest is dispersed broadly, then the final decision lies with the firms with control and decisions by other owners can be countered.

In relation to overseas indirect investment (FII), aka profile investment, this is described as a non-controlling curiosity about a corporation or possession of financing to another get together' (Daniels et al, 2007, p20); additionally it is referred to as 'the purchase of stocks and shares and bonds to obtain a go back on the money invested' (Ball and McCulloch, 1993, p43). The word 'non-controlling' in the first meaning indicates plainly that the buyer does not have any part to play in the real direct investment itself and does not have a say in the purchasing process.

There are two different varieties of FII that may be chosen: 'stock in a company or lending options to an organization or country by means of bonds, charges, or records that the buyer acquisitions' (Daniels et al, 2007, p20). After the selection of FII has been chosen, the control then is with the business they have invested in to perform FDI in a international country. A short example of FII in action is the part that Malcolm Glazer's overseas investment played in the working of Manchester United SOCCER TEAM, where he had no control in your choice making of the membership due to him not being the majority shareholder. This was, however, transformed to a FDI when he bought more shares to become the majority investor which allowed him to regulate the assets he made (Daniels et al, 2007, p21).

There isn't an excessive amount of a notable difference between FDI and FII, however the main words to look at when separating both investments are way, control and tangibility. With FDI the buyer gets the control to directly spend or buy shares of a overseas company, which is often seen and are known as tangible. In FII the investor's control of the investment is non-existent and indirect with the money been spent on shares, bonds etc by an investment finance. Therefore the trader is not actually touching what the money is allocated to and sometimes appears as intangible. As explained in the Malcolm Glazer circumstance, you can go from FII to FDI by purchasing more stocks and being touching the investment.

I am now heading to look more in depth into FDI and clarify the benefits and downsides of the investment for the coordinator country involved. There are lots of positive outcomes that FDI can bring to a country, some being more beneficial and important than others with relation to short or long-term involvement. 'FDI has come to be regarded as a major contributor to growth and development, getting capital, technology, taking care of expertise, jobs and prosperity' (Daniels et al, 2007, p165). The expansion and development of a host country can been seen as the entire beneficiary of FDI, with the facilities provided by the shareholders providing opportunities for the country and its people. With factories, you need factory employees, and with employees, you need the abilities which enable that you get the job done at hand and cope with the technologies engaged, therefore training is vital to all people. Training will enhance the knowledge and skills of the country's people that will enable those to be more informed. As the job vacancies have to be filled, this provides work opportunities for the country people to come out of unemployment and work to provide for their own families with an increased income. This results in an improved lifestyle for the country's population, the country becoming wealthier and less unemployment rate for the united states.

With positives there are always some negatives and the process of FDI is no different. Among which is the thoughts and opinions of critics who 'contend that FDI destroys local entrepreneurship, an result that affects nationwide development' (Daniels et al, 2007, p171). Despite the fact that FDI will bring with it job opportunities, are they for the right goal? This declaration disagrees with the debate in that the foreign buyers come into the sponsor countries; use their natural resources to generate profits for his or her home countries. That is a good discussion against FDI as international investors can halt the potential use of the number countries own natural resources which would bring about them becoming a wealthier country with an increased level of GDP. Because of the intervention of FDI the level of local entrepreneurship does seem limited as wealthier traders have facilities that the locals don't, which may cause a country producing slower. In addition to financial and economical drawbacks, there's also environmental issues regarding FDI as the factories used by the shareholders pollute mid-air with toxic gases which make a difference the human surroundings.

I will now look at foreign investment in practice where I will look at a few good examples, good and bad, of FDI in poor countries. Analysing the outcomes of the illustrations will help me in coming up with a conclusion as to whether overseas investment should be welcomed by poor countries.

The first example I am going to analyze is the impact of FDI in the twin-island land of Trinidad & Tobago, whom since investment obstacles were removed in 1992 have 'experienced 16 consecutive many years of real GDP expansion through 2008'. This is highly because of the marriage between themselves and america (U. S) where 'the stock of U. S. direct investment in Trinidad and Tobago was $3. 8 billion by 2007'. That is an extremely significant number as 'total international direct investment inflows within the four years 2004-2007 amounted to approximately U. S. $3. 8 billion'. The resources which may have been provided by T&T include mainly natural gases and liquefied natural gases which can be dependent on to produce the likes of iron and fertilizers. Resources like iron have been intensely included in recent tasks: 'in Dec 2006, Nucor began producing direct reduced iron for delivery to the U. S. at its vegetable in Trinidad, which has a production capacity of 2. 0 million lots per time' (http://www. state. gov/r/pa/ei/bgn/35638. htm).

The addition of FDI in such a struggling country like T&T has produced many benefits for the united states: infrastructure strategies including housing, streets and bridges, rural electrification, overflow control, and advanced water resource, drainage, and sewerage offers the united states with constructions that provides the populace with better living conditions. Although late 2008 budget slices driven by dropping export revenue will delay the beginning of many new projects, this infrastructure improvement plan is one of the government's budget priorities. Other benefits include less expenses on services such as telecommunications and broadband because of the increase in their competitions and a reduction in unemployment.

FDI in T&T has also provided drawbacks for the united states including the situation of traffic on roads. That is a worsening problem throughout Trinidad, as the road network is not well suited to the growing volume of vehicles and only a rudimentary mass travel system exists as a substitute. Another trouble is the flooding in the rainy season credited to inadequate drainage affects metropolitan and rural areas as well.

Overall Personally i think that FDI is a revelation for T&T because the investment barriers were raised in 1992. The partnership between your U. S and T&T has allowed the poor country to develop infrastructure and make more programs for development. Despite the fact that projects have been delayed, the strategies for superior drainage and roads etc are to go on and will solve the problems pointed out such as flooding.

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