However, despite its economic significance, on political grounds, FDI is a very controversial term as it is marred by controversies and political victimization especially in developing countries.
Iran is one such case where FDI has mostly remained a political issue despite the fact that Iran held one of the largest oil reserves in the world. Over the period of time, due to international sanctions, the process of Foreign Direct Investment has remained stagnant due to political hostility towards Iran. However, despite such situation, due to Iran's strategic oil & gas reserves, many countries such as China, Pakistan, India as well as other European countries made foreign direct investment into the country.
Jensen (2004) is of the view that institutional lending by supernatural institutions such as IMF has very complex and perplexing impacts on the economic performance of the countries due to institutional interference and policy dictations made by such institutions lower the flow of foreign direct investments into the developing countries.
Foreign Direct Investment has multiple consequences for the countries as it not only create an impact on the economic situation of the country but also have consequences on the political as well as social environment of the country.(Kudrle & Bobrow, 1982). The question of foreign direct investment is therefore largely viewed within the perspective of the presence of foreign influence in the country as non-domestic entities tend to control some of the strategic assets of the country. The nature of foreign direct investment into developing countries is therefore largely considered more as a political action rather than an economic impact.
This research study therefore will consider following research question
"The nature of foreign direct investment key determinants in Iran "
The above research question has been selected keeping in view the diverse impacts of foreign direct investment on the overall economy of the country especially in presence of different institutional arrangements such as economic sanctions, IMF/World Bank lead lending as well as openness to the free market policies adopted by the receiver countries.
Aims of the Research
Considering the research question, the major aim of this research study would be to analyze the nature of foreign direct investment into Iran and what are the key determinants which determine the level of FDI into the country
Foreign direct inve
Foreign Direct Investment or FDI has rapidly increased during the last few decades as the overall network of countries and institutions favoring the FDI have expanded at great pace. (Mody & Ashoka, 2007). Foreign Direct Investment plays a critical role in the development of any country because of its potential impact on economic growth…
FDI can also be defined as an investment of a company in a foreign country by building a factory within the host country. It is through a company’s direct investment in machinery, building and equipment in another country that foreign direct investment is made possible.
Inward FDI increased from 9.6% of GDP in 1990 to 26.7% in 2006. (Woodward, 2011). There has also been a recent flow of FDI towards developing economies and this has had a plethora of effects, both for home and host countries. (Raj and Sager, 2005). Foreign Direct Investment has over the last three decades aroused conflicting responses from the first and third world.
The closer linkage between and among global powers has precipitated more interdependence and better business opportunities among countries, but when economic crises strike more seriously than expected countries suffer economic losses, which sometimes cannot be solved by the International Financial Institutions (IFIs).
Eventually, countries will continue to entice high level of investment coming specifically from foreign enterprises. It is believed that trans-national firms will consider this as potentially beneficial for their operations.
Globalisation is also considered as a primary contributor to the methods used to develop foreign direct investments.
Some of these countries became full European Union (EU) members in May 2004. They also experienced a significant increase in foreign direct investment (FDI). As a consequence, the ratio of inward FDI stock to the 12 CEE countries studied here in total world inward FDI stock increased more than three-fold, from 0.81% in 1994 to 2.89% in 2004.
In 2005 the price rose by 72%. Australia benefits the most since it is the world's biggest exporter of iron ore. The output from Rio Tinto's mines in the Pilbara, in north-west Australia, has increased by an average of 15% a year since 1999. Between now and 2013 it plans to triple its output.
(Wikipedia, 2006). After the 1960's, foreign direct investments (FDI) have increased at a steady rate, with FDI stocks making up twenty percent of the world's Gross Domestic Product (GDP). Currently, China leads the world in foreign direct investments.
The author states that a multinational firm in a developed country may face higher labor costs and higher production costs when locating its subsidiaries in its own home country, while a shift overseas may involve a larger initial investment but is economically beneficial in the long run because the margin of profits are higher.
rategies that enable entities to diversify its assets and risk across diverse countries by engaging in contractual agreements with multiple potential partners. Companies may find it advantageous by producing in foreign countries compared to exporting to those countries based on
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