Abstract
This chapter indicates the overview of Foreign Direct Investment (FDI); FDI entries and export; FDI and spillover effects; FDI, human capital, and absorptive capacity; and the significance of FDI in the global economy. FDI is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. FDI offers a source of external capital and increased revenue. FDI can be a tremendous source of external capital for the developing countries, which can lead to economic development. Through FDI, capital goes to whatever businesses have the economic growth anywhere in the world. FDI helps in increasing the output through the utilization of advanced technology and management techniques. FDI benefits investors, businesses, and the global economy. FDI contributes to foreign exchange earnings, employment creation, and the increases in incomes in the global economy.
TopBackground
After 1980s, most developing economies reduced restriction on crucial areas, such as trade and finance (Bakır & Eryılmaz, 2015). By doing that, FDI easily comes into domestic economy, which can be defined as an inflow. Since the 1980s, FDI flows have significantly increased worldwide and at the same time, the share of these flows going into developing countries has followed an upward trend (Sönmez & Pamukçu, 2013). Since the 1990s, in developing countries, the significant increase in FDI has been accompanied with a strong tendency to open economies and the natural reduction and elimination of trade barriers (Ramirez, 2016). Among developing countries, China is the world's largest FDI destination. A significant portion of the FDI in China comes from the multinational corporations' subsequent investments of retained earnings or additional capital contribution (Luo, Luo, & Liu, 2008).
Key Terms in this Chapter
Spillover: The transmission of the advanced technology and knowledge from the foreign-owned company to domestic companies.
Absorptive capacity: The company’s ability to identify, assimilate, transform, and apply the external knowledge.
Foreign Direct Investment: The investment made by a company or entity based in one country, into a company or entity based in another country.
Investment: The asset that is purchased with the expectation that it will generate income in the future.
Technology: The purposeful application of information in the design, production, and utilization of products and services.
Productivity: The economic measure of output per unit of input.
Export: The function of international trade whereby products produced in one country are shipped to another country for future trade.
Human Capital: The collective skills, knowledge, or other intangible assets of individuals that can be used to create the economic value for the individuals, their employers, or their community.