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Literature Review (GDP Growth)

There is conflicting evidence in the literature regarding the question as to how, and to what extent, FDI affects economic growth. FDI may affect economic growth directly because it contributes to capital accumulation, and the transfer of new technologies to the recipient country. In addition, FDI enhances economic growth indirectly where the direct transfer of technology augments the stock of knowledge in the recipient country through labor training and skill acquisition, new management practices and organizational arrangements Foreign Direct Investment (FDI) is very important to developing countries. Though foreign direct investment, individuals or corporation obtain partial or total ownership of firms located in another country. But foreign investor should have lasting interest and substantial control over the investment. FDI contribute to growth through several channels. It directly affects growth through being a source of capital formation. As a part of private investment, an increase in FDI will, by itself, contribute to an increase in total investment. An increase in investment directly contributes to growth. A large number of studies have been done in the field of foreign direct investment and economic growth. FDI is an important category of international investment that shows a long-term relationship between the direct investor and the enterprise. It indicates the influence of the investor on the management of the enterprise. Direct investment relates the initial transaction between the investor and the enterprise. It also shows the transactions between them and among affiliated enterprises, both incorporated and unincorporated.

Literature Review (Exchange Rate)


The investigation of relationship between exchange rate as well as its volatility and macroeconomic variables including foreign direct investment got significant importance in last few decades, particularly after the collapse of Bretton woods in 1971. After the collapse of this system, majority of the countries initiated the flexible/floating exchange rate system and faced huge fluctuation in the value of their currency prices. The growing interest in foreign direct investment (FDI), stand from the perceived opport unities derivable from utilizing this form of foreign capital injection into the economy to augment domestic savings and further promote economic development in most developing economies. FDI is believed to be stable and easier to service than bank credit. FDI are usually on long term economic activities in which repatriation of profit only occur when the project earn profit. As stated by Dunning and Rugman (1985). Foreign Direct Investment (FDI) contributes to the host countrys gross capital formation, higher growth, industrial transfer of productivity technology, and competitiveness and other spinoff benefits such as

managerial expertise,

improvement in the quality of human

resources and increased investment. Other factors like higher profit from investment, low labour and production cost, political stability, enduring investment climate, functional infrastructure facilities and

favourable regular environment also help to attract and retain FDI in the host country.