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Discuss the Impact of International trade or Inward FDI on economic growth or development in an Emerging Economy - Coursework Example

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Discuss the Impact of International trade or Inward FDI on economic growth or development in an Emerging Economy

There are several definitions which are provided by different international organizations like IMF and The United Nations. The International Monetary Fund’s (IMF) definition says that FDI refers to an investment that’s main objective is to obtain a ‘lasting interest’ in an entity which operates in an economy that is different from the economy where the investor operates in (Moosa, 2002). A ‘benchmark definition’ of FDI is provided by the Organization for Economic Co-operation and Development (OECD). It says “foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (direct investment enterprise)” (Organisation For Economic Co-Operation And Development, 1999). This paper discusses the role of FDI in an emerging economy like India. It aims to provide a clear picture about how FDI has played an important role in the economic growth of the country. Furthermore, the paper also includes a brief overview of the Indian economy and the way in which it is performing over the past two decades. The Economy of India Over the past few years Indian economy is gradually turning into an open-market economy. Since early 1990 the country has experienced significant economic liberalization that includes industrial deregulation, reduction in control over foreign investment and trade and privatization of government owned enterprises. Since 1997, every year Indian economy has grown by almost 7% (Central Intelligence Agency, n.d.). The diverse economy of the country encompasses conventional farming, handicrafts, modern agriculture, multitude of services and different modern industries. Over half of the total work force is involved in agriculture whereas only one-third work force is associated with the service sector. However, services are the main source of economic development in the country. Almost 50% of the country’s total output is contributed by the service industry. India is enriched with its large educated population that is capable of speaking good English. Capitalizing on this aspect India has become one of the largest exporters of IT (Central Intelligence Agency, n.d.). Due to its strong foundation, the Indian economy protected itself very well from the recent global economic crisis, though the growth rate was significantly affected for a certain period. The weak monsoon of 2009 and inefficient food distribution system have resulted in high food prices. Inflation has been one of the key problems for the Indian government over the past two years. The country’s central bank (Reserve bank of India) has hiked the interest rate several times in order to control the inflation. In the fiscal year 2010-11, India experienced a deficit of 6.8% of its GDP and in the coming year the government aims to bring down this deficit to 5.5% of GDP (Central Intelligence Agency, n.d.). Some of the long standing challenges for Indian economy are widespread poverty, lack of social and physical infrastructure, insufficient access to the basics like higher education and drinking water and limited opportunities regarding non-agricultural employment. In 2010 India’s GDP was $4.046 trillion (in terms of purchasing power parity) and this is increased from the ...Show more

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The Impact of Inward FDI on Economic Growth or Development of an Emerging Economy Table of Contents Introduction 3 The Economy of India 3 FDI in India 5 In the recent past 5 At present 6 Role of FDI in Economic Growth 9 Conclusion 11 References 12 Bibliography 14 Introduction In today’s globalised world Foreign Direct Investment (FDI) is one of the most important sources of economic growth for most of the developed as well as developing nations…
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