Question

Question 3: For the last two decades, foreign direct investment (FDI) has been offering an unprecedented opportunity for developing countries to achieve faster economic growth. Through FDI, foreign investors benefit from utilizing their firm-specific assets and resources efficiently, such as technology and managerial know-how. For capital-scarce developing economies, FDI implies access to not only capital but also the benefit of acquiring advanced technology, managerial expertise, employment productivity, human resource development, global marketing networks, and best-practice systems of corporate governance. In particular, Asian countries have been successful in attracting FDI. Consequently, FDI in Asian developing countries increased from $396 million in 1980 to $275 billion in 2010, 1 indicating Asia as a main destination of FDI. While dramatic shifts in the composition of recipient countries have changed over time, with China currently becoming an attractive destination for FDI, Southeast Asia continues to remain an attractive hub for foreign investors. Although Southeast Asian countries have been successfully attracting FDI inflows, success in attracting FDI has varied widely between countries. Some countries fare much better than others in attracting and hosting foreign investment projects within Southeast Asia. Within this context, this study aims to understand the reasons behind why certain countries have high FDI inflows while other countries have low FDI inflows, with special reference to countries in Southeast Asia. In particular, the Philippines and Thailand will be examined. The two countries share many of the economic determinants of FDI in common, however, the level of FDI inflows differ substantially Answer the following questions each one carries 10 marks a. Do you think the political institutions can be considered as significant incentives or deterrents to FDI inflows in the Philippines and Thailand? b. What are the factors contributing for the inflow of FDI in Southeast Asian countries? c. Do you think the trade and investment policies in the Philippines and Thailand play an important role in inviting more FDI? d. Trade liberalization is an essential engine for growth for developing countries, Explain this statement with reference to Southeast Asian countries. e. Higher GDP level of economic development attracts higher levels of FDI inflows. Critically evaluate this statement.

Answer 1

a. Do you think the political institutions can be considered as significant incentives or deterrents to FDI inflows in the Philippines and Thailand?

Yes, one of the key factors assessed by investors while putting money in the form of foreign direct investment is political stability( They do PESTEL analysis) political, economic, social, technological, environmental and legal factors are considered by them. Thailand is more stable than Philippines as per political stability index.

b. What are the factors contributing for the inflow of FDI in Southeast Asian countries?

Cheap labor, huge market potential, untapped human and natural resources, low cost inputs like and, water and electricity.

c. Do you think the trade and investment policies in the Philippines and Thailand play an important role in inviting more FDI?

Yes, a country that creates a ease of doing business gets more business. Eg. Thailand is 27 in ease of doing business ranking and Philippines is 124 th ranked in 190 countries. This ranking is given by World Bank. Hence, trade and investment policies certainly impact the FDI. FDI in Philippines is consistently low, around 10 billion $ even though geographically it is a considerable size.

d. Trade liberalization is an essential engine for growth for developing countries, Explain this statement with reference to Southeast Asian countries.

Trade liberalization means that countries remove barriers on the exchange of goods between them.when these barriers are moved then efficient products with better production practices comes to the country. Consumers have more choices and businesses quickly adapt to latest practices to survive. This creates more jobs in an economy and exports may lead to economic growth.

e. Higher GDP level of economic development attracts higher levels of FDI inflows. Critically evaluate this statement.

Thailand GDP is 45,522.09 crores and Philippines is 31,359.52, It is clear that Thailand is getting somewhat same FDI and hence rather than GDP , ease of doing business, political stability and liberalization to foreign trade attract more investments. Eg. India.