Foreign Direct Investment for Development Foreign direct investment (FDI) is an integral part of an open and effective i

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Foreign Direct Investment for Development Foreign directinvestment (FDI) is an integral part of an open and effectiveinternational economic system and a major catalyst to development.The main factors motivating FDI in recent decades appear to havebeen the availability of natural resources in the host countries(and, to a lesser extent, the size of the domestic economy. Yet,the benefits of FDI do not accrue automatically and evenly acrosscountries, sectors and local communities. National policies and theinternational investment architecture matter for attracting FDI toa larger number of developing countries and for reaping the fullbenefits of FDI for development. The challenges primarily addresshost countries, which need to establish a transparent, broad andeffective enabling policy environment for investment and to buildthe human and institutional capacities to implement them Developingcountries, emerging economies and countries in transition have comeincreasingly to see FDI as a source of economic development andmodernisation, income growth and employment. Countries haveliberalised their FDI regimes and pursued other policies to attractinvestment. They have addressed the issue of how best to pursuedomestic policies to maximise the benefits of foreign presence inthe domestic economy. The study Foreign Direct Investment forDevelopment attempts primarily to shed light on the second issue,by focusing on the overall effect of FDI on macroeconomic growthand other welfare-enhancing processes, and on the channels throughwhich these benefits take effect. The overall benefits of FDI fordeveloping country economies are well documented. Given theappropriate host-country policies and a basic level of development,a preponderance of studies shows that FDI triggers technologyspillovers, assists human capital formation, contributes tointernational trade integration, helps create a more competitivebusiness environment and enhances enterprise development. All ofthese contribute to higher economic growth, which is the mostpotent tool for alleviating poverty in developing countries.Moreover, beyond the strictly economic benefits, FDI may helpimprove environmental and social conditions in the host country by,for example, transferring “cleaner” technologies and leading tomore socially responsible corporate policies. Source:https://www.oecd.org/investment/investm ... .pdfAnswer ALL the questions in this section.
Question 1 (25 Marks) The main factors motivating FDI in recentdecades appear to have been the availability of natural resourcesin the host countries and, to a lesser extent, the size of thedomestic economy. Assume a Multinational Company based in Germanyis considering investing directly in an Angola company. Withreference to a framework established by Dunning, discuss the majormotives that would have been considered in making thisdecision.
Question 2 (25 Marks) The benefits of FDI are real, but they donot accrue automatically. To reap the maximum benefits from foreigncorporate presence a healthy enabling environment for business isparamount, which encourages domestic as well as foreign investment,provides incentives for innovation and improvements of skills andcontributes to a competitive corporate climate.