Attract Foreign Direct Investment (FDI)

Attract Foreign Direct Investment (FDI) utilizing, market size, market potential and investment climate, the fundamental ingredients for investment inflow.

The most powerful drivers of FDI inflows are business opportunities that are reflected in the size and growth potential of markets. The investment climate features such as strong institutions, regulations and investment incentives boost the impact to the development of the investment and hence collectively attract more FDI.

There exists promising trends in global foreign direct investment flows for development and transition economies as FDI flows more and more from developed countries and developing countries into targeted developing countries as well. To this end, there is no greater opportunity today than to take advantage of the job creating and investment opportunities potential by attracting FDI into a country. The question therefore is:

What drives decisions on where to invest?

Research has identified motivations driving companies to undertake various types of FDI (USAID 2005) and they are as follows:

  • Natural-resource-seeking FDI—to gain access to a natural resource not available in the com­pany’s home market.
  • Market-seeking FDI—to gain access to new cus­tomers, clients, and export markets.
  • Efficiency-seeking FDI—to reduce production costs by gaining access to new technologies or competitively priced inputs and labor.
  • Strategic-asset-seeking FDI—to go after strategic assets in a local economy, such as brands, new

Though the definitive understanding of what drives investment decisions is based on the location itself, theoretical and empirical studies in history has pinpointed that multiple interacting factors impact the decision making in general terms. These include 1) the market size, 2) market growth potential and 3) the investment climate.

Market Size

The United States the largest economy in the world, has the highest inflow of foreign investment followed by China the most populous in 2010 (UNCTAD 201 1b).

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