Strategies of Foreign Direct Investments - Essay Example

?Strategies Table of Contents Question 2: Foreign Direct Investments (FDIs Good or Bad for the Developing Countries 3 Question 3: Agriculture or Industrialization: Which Should Be Given the Precedence in Developing Countries? 6 Question 4: Slums: A Crucial Problem in 21st Century 8 References 11 Question 2: Foreign Direct Investments (FDIs): Good or Bad for the Developing Countries The root cause for adopting Foreign Direct Investments (FDIs) as the most significant elements for economic development can be identified in the theory of capital as presented by Kaldor (1962). According to the theory, it is assumed that capital allocation is quite significant for the development of economies. Capital allocation is defined as the strategic alliance to augment the means of production in a country which can further be identified as the physical infrastructural inputs, such as factories, warehouses, transports and other elements excluding human and financial variables (Kaldor, 1962). FDI is often defined as an accord through which an entity of one economy tends to invest capitals in another economy with the purpose of gaining and simultaneously providing long-term benefits to the parties involved, i.e. the direct investor, direct investment enterprise, and the economies on the whole (OECD, 2009). As is evident from the benchmark definition provided by OECD, FDI ordinarily means the liberty to foreign investor allowing them to set up a production unit through investment in the host country with the purpose to stimulate the means of production in the economy and thus enhance capital allocation (Neuhaus, 2006). It is in this context that the involvement of FDIs in the economic development of the host countries, especially in the case of developing countries has been in debate for decades. In this regard, the foremost concern was drawn on the sovereignty of the state governments and the effects that FDIs had due to growing influences. As stated by Schnitzer (2000), FDIs reward few significant rights to the direct investors in order to operate in the host country with minimal legislative barriers. This influences the monetary policies of the country which in turn affects the sovereignty of the state government as can be observed from the illustration of East European economies, e.g. Hungary, Poland, Czech and others (Schnitzer, 2000). In many instances, FDIs have been witnessed to affect the sustainable development of the host country as well. It is worth mentioning that from a general point of view FDIs are expected to provide the host country with enhanced employment opportunities; thereby reducing poverty and enhancing the overall economic growth. However, it is quite important that the resource allocation is equally distributed in the country to gain total development. But evidences have revealed that FDIs have failed in providing total benefit to the host developing economies (Velde, 2001). To be illustrated in the case of Africa, the FDIs had been recorded to increase significantly as was recorded in 2002. Despite the significant rise in inflows of FDIs in the economies, namely, Nigeria, Tunisia, Egypt, and Algeria, also recorded as the chief direct investment enterprises of the continent, the economic growth has been quite low in comparison to other economies facilitating FDIs, such as Poland, Hungary and other Western economies. The increase of corruptions, extortions and other social issues has also affected the economic growth in these countries. Weak sustainable development can also be witnessed in the case of Latin American as well as Caribbean economies (Gardiner, 2002). FDIs have also proved to be beneficial in many instances, e.g. in the case of China. The inclusion of FDIs in the economy have rewarded with better productivity in the technology sector as well as in the case of human resource development with almost equal distribution of resources. China, as a developing economy had also faced the risk of sovereignty and other political, economical along with social risks which were dealt with effectivity by the state government securing the benefits of FDIs and reducing its consequences (Graham & Wada, 2001). It is of no doubt, that FDIs can generate enhanced income opportunities in the host country by investing in the means of production of the economy facilitating the overall economic growth. However, the benefits of FDIs are subject to various considerations. For instance, the equal distribution of resources, social security, solidarity, political and sovereignty risks are few of the disadvantages of FDIs which can be recognized to affect the sustainable growth of the host economy. Therefore, it can be stated that the strategy to attract FDIs in the country can only be beneficial if it is accompanied with strategies to control the risks associated with the involvement of FDIs in an effective and collaborative manner. Where controlled FDIs can result in rapid and sustainable economic growth, uncontrolled FDIs can hamper the sustainability of the economy to a large extent. Question 3: Agriculture or Industrialization: Which Should Be Given the Precedence in Developing Countries? Industrialization has both social and economic values and thus can be defined in each of the perspectives. In social terms, it is defined as an ‘agent of social change’ while in economic terms it is often referred as the driver of ‘economic development’. From a general point of view, industrialization can be identified as a process of economic development which in turn affects the social environment of a country (Blumer & Morrione, 1990). In this context, only the economic definition will be considered which is stated to influence the entire economic development process and thus are significantly considered by the developing countries in the modern era. With the growing impact of globalization, countries in the world faced competition on an international level which in turn enhanced the significance of export and import operations among the developed and developing economies. Notably, the imported products mostly were technologies while the exported products were identified as food products (Kjeldsen-Kragh, 2007). It is in this context that experts stated industrialization to affect the agriculture sector of the economies as most of the developing countries, such as the Asian and African economies were solely based on agriculture. However, with the growing impact of industrialization, especially with the focus on service and knowledge based industries, agricultural development in these economies were observed to be hampered, such as in the case of India (Mellor, 1995; Singh, 2006). A noteworthy example to illustrate the effect of industrialization on the agricultural growth of the developing economies can be witnessed with reference to the recent food crisis. Shafaeddin (2008), states that developing economies are providing more concern to the service based industrialization which in turn is resulting in weaker policies related to agricultural support. In other words, greater emphasis to industrialization is positioning the agricultural sector as a secondary concern for the developing countries (Shafaeddin, 2008). Evidences have revealed that due to a growing concern on the neo-liberalized to facilitate industrialization, the production of food products have decreased in the developing countries. Subsequently, the import of food products have increased in the developing economies fuelled up by the growing population (Shafaeddin, 2008). Thereby, the argument arises on the sole concern regarding the aim of industrialization, i.e. to support the production process of developing countries which includes agriculture as a prime factor. However, in its implication, industrialization has been adopted as a mean to generate short-term benefits in terms of enhanced exports and greater foreign direct investments that have apparently shifted agricultural growth to the secondary position, just as a subsidiary of service based industries, supplying cheap foods and labors in developing countries (Jaffee & Henson, 2004). However, in pragmatic concern, the role of agriculture must be given precedence with industries to support the agricultural growth of the developing countries. In other words, industrialization should be subsidizing the agricultural growth of developing countries as it is recognized as one of the crucial facets of developing countries to gain economic development (Baker & Et. Al., 2002). Question 4: Slums: A Crucial Problem in 21st Century On one hand, the world is pre-occupied with the issues such as, industrialization, globalization, climate change, and is about to witness a most probable shift of economic power from developed countries to the developing countries. On the other hand, the developing countries which are most likely to enjoy the global economic power are still facing challenges in terms of ‘slums’ (Arnott, 2008). The term ‘slums’ were first introduced in 1820s indicating the socio-demographic areas possessing the poorest quality of living standards, including housing, sanitary conditions, criminal offences and other aspects of socio-economic culture. Slums are also referred as the main causes of epidemics and as a devastated facet of urban areas of a nation. The people migrating to slum areas belong to the poorest level of the economy and thus lack in almost every facility of the urban life such as, literacy and a healthy living environment (Un-Habitat, 2007). There are various reasons due to which slums still exist in the socio-demographic environment of a country. The first and the foremost reason is poverty which is again caused by the unequal distribution of resources. With the growing socio-economic opportunities in the urban areas, people tend to migrate from rural to the urban regions of a country. Due to the growing migrating rates from rural areas to urban areas, a considerable increase in the poverty conditions of the urban areas can be witnessed which in turn causes slums to exist. The migration rate is also facilitated by the safety of tenures which are mostly hindered in the rural areas. In slums the security and opportunity of improvement are quite apparent which also attract rural dwellers to settle in slums (Un-Habitat, 2007). Therefore, it is due to the need of greater economic opportunities that people tend to migrate from rural to urban areas and causing slums to exist ignoring the fact that the living conditions in the rural areas are actually better than that of the slums. It is worth mentioning that over the past few decades, the population of slums has increased to a significant level with an average growth of 2.22% in developed countries and 2.37% in the developing countries from 1950 to 2006 (Un-Habitat, 2007). The annoyance caused by slums has evidently emerged as a challenge for the countries to gain total economic growth. With this concern, governments of various countries individually and collaboratively with the international regulatory bodies such as, World Health Organization have undertaken various measures in order to abolish slums. Few of the noteworthy measures considered by the governments of various nations facing the challenges raised by slums can be identified as improving the essential infrastructures of the slum areas, providing educational facilities to the people residing in slums, providing jobs and even reallocating the residents from slums areas to developing regions of the country (Massachusetts Institute of Technology, n.d.). To be precise, the strategies undertaken to develop slum areas are mostly concerned with the implementation of public policies and focused on the needs and demands of the residents in slums. It includes social, economical, physical, environmental and organizational developments of the salvaged areas. In many instances, such as India, Brazil, Indonesia and other countries, with the implementation of these strategies, the living standards of slums were improved. However, these strategies are subject to proper execution with the sole purpose of abolishing slums for the betterment of the economy (United Nations Human Settlements Programme, 2009). References Arnott, R., (2008). Housing Policy in Developing Countries: The Importance of the Informal Economy. Urbanization and Growth. Baker, T. & Et. Al., (2002). Industrialization of Agriculture: Economic Implications for Producer Investments in Value-Added Business. American Farm Bureau Foundation for Agriculture. Blumer, H. & Morrione, T. J., (1990). Industrialization as an Agent of Social Change: A Critical Analysis. Transaction Publishers. Gardiner, R., (2002). Foreign Direct Investment: A Lead Driver for Sustainable Development? Economic Briefing Series No. 1. Graham, E. M. & Wada, E., (2001). Foreign Direct Investment in China: Effects on Growth and Economic Performance. Oxford University Press. Jaffee, S. M. & Henson, S., (2004). Agro-Food Exports from Developing Countries: The Challenges Posed By Standards. Global Agricultural Trade and Developing Countries, pp. 91-114. Kaldor, N., (1962). Capital Accumulation and Economic Growth. UNESCO. Kjeldsen-Kragh, S., (2007). The Role of Agriculture in Economic Development: The Lessons of History. Copenhagen Business School Press DK. Massachusetts Institute of Technology, (No Date). Cities Alliance for Action Plan for Moving Slum Upgrading to Scale…Cities without Slums. The World Bank. Retrieved Online on May 19, 2011 from http://web.mit.edu/urbanupgrading/sponsor/ActionPlan.pdf Mellor, J. W., (1995). Agriculture on the Road to Industrialization. The Johns Hopkins University Press. Neuhaus, M., (2006). The Impact of FDI on Economic Growth: An Analysis for the Transition Countries of Central and Eastern Europe. Springer. OECD, (2009). OECD Benchmark Definition of Foreign Direct Investment. OECD Publishing. Schnitzer, M., (2000). Debt v. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows. Economica, Vol: 69, pp. 41-67. Shafaeddin, M., (2008). Knocked-down Agriculture After De-industrialization; Another Destructive Influence of Neo-liberalism. Economic Research Institute. Singh, N., (2006). Services-led industrialization in India: Assessment and Lessons. Industrial Development for the 21st Century, pp. 235-291. United Nations Human Settlements Programme, (2009). Planning Sustainable Cities: Global Report on Human Settlements 2009. Un-Habitat. Un-Habitat, (2007). What Are Slums And Why Do They Exist? Twenty First Session of the Governing Council. Retrieved Online on May 19, 2011 from http://www.unhabitat.org/downloads/docs/4625_51419_GC%2021%20What%20are%20slums.pdf Velde, D. W., (2001). Policies towards Foreign Direct Investment in Developing Countries: Emerging Best-Practices and Outstanding Issues. Overseas Development Institute. Read More