Foreign Direct Investment in Developing Countries Article

Foreign Direct Investment in Developing Countries - Article Example This topic bears importance in that if wielded appropriately it may just be the ticket out of poverty lines for developing nations. Growth of the economy by seven or eight percent is achievable but only if there is investment of around 35 to 40 percent of the GDP. National savings undoubtedly fall short of this by a huge margin. Therefore, it is up to foreign borrowing and investments to meet this gap. Thus, it is imperative for the governments of developing nations to providing incentives to investors. This paper will focus on the foreign direct investments in developing countries and the impact it causes to both participating parties (Moran 75). The political and social changes of late 20th century and the recent technological advancements have brought about immense changes in the economic situation of the present world. The planned economies are failing and their retreat from the global economy. The development and the rising influence of free and open market economies and the ever stronger tendency towards a world economy. Predicts broad changes in various interacting phases (e.g. economical, political and social) of the global community in the future. The old restrictions and monopoly of the old world transformed into friendly smiles and gentle politics with policies of closed economies being dumped and nations embracing the open capitalist economies. This phenomenon has puzzled many. Everyone however seems to agree on a single point. There would be no foreign direct investment if the markets were perfectly competitive. Therefore, markets are to work efficiently and ensuring there is no barriers in the form of trade or c ompetition; then the phenomenon of FDI is much more likely. Many theories have tried explaining this phenomenon. These theories attempt to explain this phenomenon based on different assertions such as perfect and imperfect competition of markets. The currency based methods as well as those that