In this context, this paper will delve into the multifaceted nature of FDI, shedding light on its significance in fostering economic development, technology transfer, and job creation (Abu Bakar et al, 2022). Additionally, it will explore the various factors that influence the flow of FDI, such as political stability, economic conditions, and market size (Amdam & Benito, 2022). The analysis will also consider the potential risks and drawbacks associated with FDI, including issues related to national sovereignty and economic dependency (Hofbauer & Limanskis, 2022). By examining FDI from different perspectives, we can gain a deeper understanding of its role in shaping the global economic landscape and the potential implications for both developed and developing nations (Prasetyo Khafidzin, 2021).
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LITERATURE REVIEW AND DISCUSSION
Foreign Direct Investment (FDI) has been a dynamic force in the world economy, and current trends indicate its continued importance (inikait & Meidute-Kavaliauskiene, 2023). In recent years, there has been a notable shift in FDI towards the technology and innovation sectors. With advancements in technology and the digital economy, multinational corporations are increasingly investing in high-tech areas, such as artificial intelligence, green technology, and biotechnology (Shekhar & Jena, 2021). This trend is motivated by the intention to leverage the opportunities for sustained expansion and advancement in these industries. Moreover, FDI has been moving from developed countries to emerging markets, with Asia, particularly China and India, attracting substantial inflows of foreign investment (Temouri et al, 2022). This is indicative of the growing economic significance of emerging markets, with governments in these countries often offering incentives and reduced regulations to attract FDI (Smirnov & Lukyanov, 2021).
According to Samour et al, (2022)Various theories help explain the motivations behind FDI. The Market Imperfections Theory suggests that firms invest in foreign markets to exploit differences in factors like labor costs and resources. The Internalization Theory posits that companies engage in FDI to internalize their operations and reduce transaction costs, thereby improving coordination and control (Nighat Farooq et al, 2022). Additionally, the Eclectic Paradigm, also known as the OLI framework, combines ownership advantages, location advantages, and internalization advantages to elucidate the factors driving FDI decisions (Sawitri & Brennan, 2022). Political ideology significantly influences a government's attitude toward FDI. Liberal governments tend to be more welcoming of FDI, emphasizing open-market policies and reducing restrictions to attract foreign investors (Zhao, 2022) .In contrast, socialist governments may be more cautious, focusing on protecting national interests and preserving domestic industries (de Jong, 2021). Nationalist governments prioritize self-sufficiency and sovereignty, leading to more stringent regulations on foreign ownership. Therefore, understanding the role of political ideology is essential when analyzing a government's approach to FDI (Onody et al, 2022).
Foreign Direct Investment (FDI) entails advantages and disadvantages for both the countries of origin and the host nations. For the home country, it can stimulate economic growth and job creation but may lead to some domestic job displacement due to offshoring (Appiah-Kubi et al, 2021). Host countries can gain capital, job opportunities, and economic development, while potential drawbacks include a risk of exploitation and dependence on foreign corporations (Wu & Chen, 2021). Governments can use a range of policy instruments to influence FDI, including tax incentives, trade policies, and investment promotion agencies (Ofori & Asongu, 2021). Managers operating in the context of FDI need to be aware of the different theories and government policies associated with FDI, as these factors can significantly impact their business strategies, risk assessments, and global expansion plans (Wako, 2021).
Recognize current trends regarding foreign direct investment (FDI) in the world economy.
According to Lashchyk & Viblyi, (2021) Currently, there are discernible patterns in the global economy concerning Foreign Direct Investment (FDI).One prominent trend is the increasing FDI in the technology and innovation sectors (Bris et al, 2021). Countries are in a race to attract investments in high-tech industries such as artificial intelligence, blockchain, and green technologies ( & , 2022). This surge is primarily driven by the desire to establish global technology hubs, which serve as catalysts for long-term economic growth and knowledge-based job creation (Joo & Shawl, 2021). Then, according to Jaworek et al, (2022) Furthermore, another significant trend to be recognized is the shift of FDI from developed countries to emerging markets. There is a noticeable increase in FDI flowing into markets in Asia, Africa, and Latin America, driven by rapid economic growth, youthful populations, and substantial growth opportunities (Gizaw et al, 2023). Emerging economies are increasingly seen as promising investment destinations, creating heightened competition among nations to attract foreign investors. Understanding these trends is key to identifying the opportunities and risks associated with FDI in the current global economy (Sou & Vinnicombe, 2023)
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Explain the different theories of FDI.
Foreign Direct Investment (FDI) can be understood through various theories that explain the motivations behind multinational corporations investing in foreign markets (Ben Amara et al, 2023) .One of the prominent theories is the "Market Imperfections Theory." This theory posits that FDI occurs due to imperfections in the market. Firms invest abroad to exploit differences in factors like labor costs, technology, and raw materials (Bobeni Hintoov & Bdy, 2023). By doing so, they seek to lower production costs and increase efficiency. This theory suggests that FDI arises when companies believe they can gain a competitive advantage by investing in foreign markets, where these advantages may not be fully realized in their home countries (Dominikus Leonardo et al, 2023).
