Interrelation of Countries' Developmental Level and Foreign Direct Investments performance/Saliu Issivystymo Lygio Ir Tiesioginiu Uzsienio Investiciju Veiklos Saveika

By Lankauskiene, Toma; Tvaronaviciene, Manuela | Journal of Business Economics and Management, September 2011 | Go to article overview

Interrelation of Countries' Developmental Level and Foreign Direct Investments performance/Saliu Issivystymo Lygio Ir Tiesioginiu Uzsienio Investiciju Veiklos Saveika


Lankauskiene, Toma, Tvaronaviciene, Manuela, Journal of Business Economics and Management


1. Introduction

As inflows of foreign direct investments (FDI) had increased during the last three decades, the issue of their performance gained in popularity. Almost every region of the world is revitalizing the long and contentious debate about the costs and benefits of FDI inflows (Hansen and Rand 2006). On one hand, given appropriate policies and a basic level of development, FDI can play a key role in the process of creating a better economic environment (Armbruster 2005; Lee and Tcha 2004). On the other hand, potential drawbacks do exist, including a deterioration of the balance of payments, as profits are repatriated having negative impacts on competition in national markets (Tvaronaviciene and Kalasinskaite 2010). Some countries even eased restrictions on repatriations of dividends by foreign companies (Tarzi and Shah 2005).

There are many attitudes towards performance of foreign direct investments and their determinants (Bedell 2005; Head et al. 2005; Hoi Ki Ho and Tze Yiu Lau 2007; Ismail and Burak 2009; Jackson and Markowski 1996; Robertson 2006; Tvaronaviciene and Grybaite 2007). Furthermore, if FDI seems to be beneficial in one country that does not mean that it will be beneficial and in another (Pecaric et al. 2005; Vissak and Tonu Jun 2005). There are many discussions in relevant scientific literature about negative or positive impact of foreign direct investments on host countries' development (e.g. Tvaronaviciene and Kalasinskaite 2010). We are interested in overall developmental impact of foreign direct investments on differently developed countries (Changwen and Jiang 2007; Hermes and Lensink 2003; Jensen 2006; Lall and Bora 2002; Sumner 2005; Sylwester 2005). Our objective is to formulate hypothesis about interrelation of countries' developmental level and foreign direct investments performance with reference to relevant scientific literature.

2. Foreign direct investments and development connection 2.1.

Foreign direct investments impact on host countries' economies

Economic development most generally is perceived as increase in the standard of living of a country's population associated with sustained growth from a simple, low-income economy to a modern, high-income economy. Its scope includes the process and policies by which a country improves the economic, political, and social well-being of its people.

Economic development contains extensive economic growth (output enlargement, using more resources) and intensive economic growth, that is productivity increase, innovation implementation or economic shake-up, new job places creation. Economic development is a process, which can be defined as appointive human, financial, organizational, physical and natural resources mobilization for the purpose to expand provided competitive services and products quality and quantity for community. The main goal of economic development is to enlarge speed of asset creation (Clarc 1990).

Every country has its own level of development which is best characterized by countries development indicators. Furthermore, every nation tries to put all efforts to reach maximum results and improve its developmental level, because all human well-being depends on this.

Foreign direct investments more or less contribute to countries' economic development.

There are two general attitudes towards foreign direct investments impact on host countries' economies. One of them, the most widespread and known for majority of people is presented below. Demand of foreign direct investments for economics, together for economic development is double,--from one point of view the increase or decrease of them affect gross domestic product (GDP), income, unemployment level, poverty, total productivity, quality of services, incentives for innovation, manufacturing trends, funds mobility, trade, exports orientation, etc. Investments are a very important remedy, encouraging competitive ability of manufactured production or provided services in each of the countries. …

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