Chapter One Introduction
1.1 Motivation and Significance
Globalization has brought new chapter to the whole countries in term of the economy sector.Through globalization, a country can do more international trade either export or import to fulfillthe people’s needs. Besides, foreign direct investment also has been important source to developthe economy in a faster way. Foreign Direct Investment flows showed growth by 12% in 2019 to$1,426bln from $1,3bln in 2018 (OECD data, 2019). As long as, expected national investmentssurpass actual savings that the country has, there is always the need for external capital inflows(Polyxeni, 2016). Capital flows are significantly compulsory as well as due to investments withlong development periods of time that produce non-financial revenues including; upwardgovernment expenditure that are not tax-oriented and by the time of real savings are lesser thanpossible savings due to repressed financial markets even capital flight. Donaubauer (2020) arguesthat FDI is supposed to lead to economic development not just by raising international investmentsbut even by crowding in external domestic investment. Through fostering both upward and reverselinkages with the domestic economy, increased employment is implicitly generated and highereconomic development induced. The best noticeable impact of international capital flows to hostcounties is considered to enlarge the amount of domestic saving in states with different richinvestment chances. It simply shows that capital bring in nations can take advantage even whenthe interest rate and the equity yields to the overseas suppliers of capital are high. There are 4 typesof private flows: Foreign Direct Investment, Portfolio Investment, International Bond and EquityOfferings, Commercial Bank loans and lending to Local Banks and private entities.
1.2.1 Literature review of foreign researchers
Over the years, investment activities and related categories have attracted the attention ofresearchers and professionals in the field of financial management of enterprises and otherdisciplines. The concept of capital account can be better explained in the framework of a nation’sbalance of payments (BOiP). A country’s BOiP is a list of dealings between its citizens and non-citizens. The current and the capital accounts are two main accounts of BiOP. The current accounts’transactions contain trades of properties, trade in service area, expenditures (bonuses, interest andmigrants’ remittances from earnings overseas) and worldwide transfers. The capital accountregisters every contacts that do not consist of the receipt of revenue. It is a choice made by a state’sadministration to change from a closed capital account system, so as to capital may leave or enterany time. It basically helps to move capital easily inward and outward of states. By freeing upcapital account movement, nations eliminate limitations from global dealings connected to themeasure of capital. Meaning the removal of controls on both home country residents’ internationalfinancial transactions and investments in the home country by foreigners. Henry (2014) states thatcapital account liberalization in a standard experience is about permitting capital to waft freelyinto and out of a selected country. This connotes a planned policy that lets in home companies toborrow from foreign banks, foreigners are allowed to purchase home debt instruments as well asinvest in the domestic inventory marketplace.
Chapter Two Theoretical Framework of FDI
2.1 Foreign Direct Investment Theories and Motives
Foreign direct investment (FDI) is an important factor in stimulating economic growth indeveloping countries. The re