MUHMMAD IKRAM ULLAH

ROLL NO. 1937

SUBMITTED TO MA’M SIDRA IMDAD

FOREIGN DIRECT INVESTMENT

WHAT IS A FOREIGN DIRECT INVESTMENT (FDI)?

A FOREIGN DIRECT INVESTMENT (FDI) IS AN INVESTMENT MADE BY A FIRM OR INDIVIDUAL

IN ONE COUNTRY INTO BUSINESS INTERESTS LOCATED IN ANOTHER COUNTRY.
GENERALLY, FDI TAKES PLACE WHEN AN INVESTOR ESTABLISHES FOREIGN BUSINESS
OPERATIONS OR ACQUIRES FOREIGN BUSINESS ASSETS IN A FOREIGN COMPANY. HOWEVER,
FDIS ARE DISTINGUISHED FROM PORTFOLIO INVESTMENTS IN WHICH AN INVESTOR MERELY
PURCHASES EQUITIES OF FOREIGN-BASED COMPANIES.
IMPACT OF FOREIGN DIRECT INVESTMENT (FDI)

• As present times are marked by the aftermaths of the global economic crisis from
2007/08, affected countries are seeking to find way out recession. In order neutralize the
negative effects that crisis has caused they look for the most appropriate and the most
optimal economic growth policy. To achieve this goal these countries (includ-ing Republic
of Croatia) should focus on the determinants of economic growth that could be affected
in relatively short time period. Todaro and Smith (2012)1 state that the components of
economic growth of primary importance in a country are:• capital accumulation (which
include all new investments), • population growth and • technological progress.
HISTORICAL BACKGROUND OF FOREIGN DIRECT
INVESTMENT
• There is a growing recognition of the importance of the private sector and of Foreign
Direct Investment (FDI) in the development process of the underdeveloped countries. A
considerable number of developing countries as well as the countries in transition have
become more receptive to FDI and are exploring ways for increasing inflows. Several
considerations lie behind these perceptions. The first is an increasing preference for
investment in equity form over commercial bank borrowing, which have proved to be
unpredictable, onerous and inflexible in its servicing obligations, and obtainable for many
countries. Foreign investment provides not only an initial capital inflow but the
subsequent outflow of profits is also determined by the performance of the investment.
NATIONAL SCOPE OF FDI

• The resilience of foreign direct investment during financial crises may lead many developing
countries to regard it as the private capital inflow of choice. Although there is substantial
evidence that such investment benefits host countries, they should assess its potential impact
carefully and realistically. These developments increase the need for attracting FDI into
Pakistan. FDI is a significant long-term commitment and a part of the host economy itself.
In the difficult circumstances described above, Pakistan’s policy on foreign capital
mobilization must attach priority to (i) official multilateral assistance
INTERNATIONAL SCOPE OF FDI

• The IMF and other international and regional organizations are working with countries to
improve FDI statistics by developing methodologies and providing compilation guidance
(including information on country practices), and through technical assistance, training
courses, and workshops.
• Countries are compiling and disseminating more data on FDI transactions and stocks and
increasingly are adopting the recommendations of international statistical manuals.
However, despite these improvements, and reflecting the complexities of compiling these
data, there remain important deficiencies in the coverage and comparability of data in
both industrial and developing countries.
ROLE OF FOREIGN DIRECT INVESTMENT IN THE
ECONOMIC GROWTH OF PAKISTAN
• Foreign direct investment and remittances play an important role in the economic
growth of a country by bringing the latest technology, promising better infrastructure,
providing foreign capital and generating employment opportunities. The policy
environment, macro-economic stability, a sound domestic financial system, good law and
order conditions and the availability of cheap energy and skilled manpower are all
assumed to be some of the important pre-conditions for foreign direct investment.
Remittances, being a reliable alternate source of capital, serve the country well in
distressed economic situations