Academic journal article UTMS Journal of Economics

The Influence of Foreign Direct Investment on the Economic Development

Academic journal article UTMS Journal of Economics

The Influence of Foreign Direct Investment on the Economic Development

Article excerpt


Through the conditions of globalization, liberalization of markets, removing the barriers to the movement of products, services, capital and information, the investment process is facilitated and intensified. Companies create strategies for the expansion of business activities and growing their presence on the global market. International management is understood as a way of managing the international companies. There is no country in the world which is economically sufficient by itself and is completely independent of other countries. The trend of a single global economy presents connection and expansion of the markets, which provides unlimited opportunities for the international companies and managers. The process of globalization creates greater competition between companies in the world, while also deepen their interactions that rely on mutual cooperation through which they could maintain their competitive edge in the market.

The international environment is filled with challenges that include analyzing the new market, its impact on the domestic company, planning and managing that will contribute an easier adaptation on the changing factors and effective application of ethical practices by companies (Adams 2009). The essential key for survival and success of the companies is the adapting to the changing environment. The choice of a system and style of managing depends on the nature and characteristics of the country or the market in which they perform, that includes the people and their needs and requirements as well as the main goal of the companies.

The decision of the management of companies to expand on the international market stems from the desire for greater profit, and the development of the company. In this decision, should be taken into account the differences between domestic and foreign markets. The analysis of the environment plays an important role in the selection of an international strategy for entering the new foreign markets. There are several ways to enter the international market. One of the most used and simplest is the export of products and services. Then licensing and franchising, joint ventures, foreign direct investments.


One of the most commonly used terms in the international business is the globalization. This term is used to describe a number of related, but different, sociological, economic, political and business phenomena. In general, globalization refers to the development of global or world business activities, competition and markets and also the increase of global interdependence between the national markets (Branstetter and Saggi 2011).

The term "Globalization" is widely used in business circles and the economy, to describe the increasing internationalization of markets for goods and services, the financial system, companies and industries, technology and competition. In a globalized economy, the significance of the distances and national boundaries is significantly reduced due to removing the obstacles to market access. Also, there is a reduction of the costs, time and the distance in the international transactions. The changes caused by the dynamics of trade, capital flows and technology transfer have increased the interdependence of the manufacturing markets in different countries (Fu, Pietrobelli, and Soete 2011).

The growing intensity of international competition have increased the need for crossborder strategic interactions, directing the business companies to be organized into transnational networks. Globalization is characterized by the growth of interdependence in different aspects. Thus, foreign direct investment is accompanied by technology transfer and (know-how) knowledge, along with the movement of capital (international debt, repatriation of profits, and interest rates), generating exports of goods and services from the country of the investor (Alfaro et al. …

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