The Importance and Effectiveness of Foreign Direct Investment - Essay Example

This study is significant for establishing how transitioning European states and the Russian Federation, in particular, can benefit from FDIs as they transfer from command economies to open market economies and how and why these states should increase inflows from FDIs. Although there are some doubts about the link between FDIs and growth, more recently, there is an increasing perception that there is a positive connection between FDIs and economic growth and development. Growth theory is primarily responsible for this growing tendency to perceive a positive link between FDIs and economic growth and development.

Growth theory takes the position that FDIs bring about growth through technology transfers, improvements in institutions, and thereby greater efficiency and productivity all of which contribute to economic growth. These factors are transferred from developed countries to developing economies, including transitioning states (Lim 2001, 3).This study is therefore significant for establishing the link between institutional soundness and FDI inflows. The Russian experience and the experience of CEE transitioning states will inform of this significance.

It is theorized that if the CEE states with more dramatic institutional reforms have reaped greater benefits from FDI inflows, it follows that institutional reform is insufficient in other less successful CEE states. More importantly, this study is significant for meeting the objective of identifying the institutional reforms necessary for the Russian Federation to be competitive with other world powers such as China and the US.C. Research DesignThis research study is organized and presented as follows:Part 1: This part of the research study is divided into two parts.

The first part introduces the topic of research and the hypothesis: FDIs support economic growth and development and important part of the transitioning state’s success. Institutional reform is important for supporting, attracting, and sustaining FDIs.