Academic journal article Review of European Studies

The Impact of Foreign Direct Investment, Domestic Investment and Imports on Palestinian Economic Growth

Academic journal article Review of European Studies

The Impact of Foreign Direct Investment, Domestic Investment and Imports on Palestinian Economic Growth

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

All aspects of our life nowadays are characterized by openness and globalization of activities, not in the measures of size and distance, but by the measures of ease of different activities internationalization, to achieve the desired objectives from any place in the world. The economy is just like any other areas affect and affected by the impact of globalization and openness, and nowadays the most important thing that affect economy is openness. The effect of openness in economy occur through liberalization of trade in goods and services and the free movement of factors of production such as capital by FDI.

FDI are considered to be a significant driver for advancing the economic development of emerging economies of developing countries as well as for developed economies. The inflow of FDI resulting from the developments in host country investment environment and the expanding of multinational enterprises has important effects on economic growth. The host country experts involved in attracting investment try to adopt the investment infrastructure, related rules and regulations for facilitating foreign investment conditions exposed to industry and service organizations to attract FDI. The FDI inflows have been observed under several facets that relate to the impact of FDI on host countries, where the correlation between FDI and economic growth has several advantages. Many researchers shed the light of compound benefits of FDI on the host economy and at the same time profiting the multinational companies (Alfaro et al., 2004; Chowdhury & Mavrotas, 2006; Omran & Bolbol, 2003; Estrin & Meyer, 2004; Kostevc et al., 2007; Sadni-Jallab, 2008). Several researchers through their studies confirmed the positive impact of FDI on economic growth (Neuhaus, 2006; Alfaro, 2003; Buckleyet et al., 2002; Carkovic & Levine, 2002; Adams, 2009). FDI are regarded as a combination of capital inflows, technology transfers and knowledge.FDI are as significant for developing economies as these economies need sufficient reserves as well as knowledge, technology and capital to fuel economic growth (Bevan & Estrin, 2000). FDI advances economic growth by i) capital accumulation where achieving savings and investment progression,more inputs being fed into the production process and the availability of a broader range of intermediate goods ii) technology transfer as the new technology is adopted in the host country,skilful and knowledge-enabled human capital, improvement labour qualification and access to external markets where these advantages are driven by multinational companies (Buckley et al., 2002; Carkovic & Levine, 2002; Noorbakhsh et al., 2001; Sadik & Bolbol, 2001; Miyamoto, 2003; Maitah et al., 2014).

From the establishment of Palestinian Authority (PA) in 1994 as a subsequent of Oslo agreement in 1993, PA recognized the important need to prepare the related environment for attracting domestic and foreign investment as a necessity economical need for accumulation of foreign capital in order to overcome the lack of domestic reserves. Palestinian economy as a developing one suffers from many drawbacks such as low per capita income, low productivity, and large deficit of the balance of payments, high level of unemployment rate, unskilled employees, and limited market size and instability of social, political and economical situation driven by the consequences of Israeli occupation. So as to try to overcome these limitations PA recognized the importance of FDI in advancing economic growth by depressing unemployment rate, boosting knowledge of quality and productivity and inquiring new technologies for enhancing domestic labor power skills and increase productivity by moderately utilizing the economic resources. In order to attract investment PA legally confirmed and legislated the investment law in 1994 and modified it in 1998, the investment law contains regulations that attracts domestic and foreign investment such as easing the legal formation of businesses and surrendering tax convictions. …

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