Foreign Direct Investment and Its Impact on The Regional Level: A Prospective Analysis

Abstract

Some countries in development like China, the Philippines, Nigeria, Pakistan, Bangladesh, Vietnam and Ukraine do an active promotion in order to raise foreign direct investment (FDI) under the proposal of a positive effect in economic growth while implementing this type of fundraising. Thus, it constitutes an important source of external financing, allowing increases in productivity through technologic transfer as well as rises in competitiveness, efficiency in the managerial models, and expand the countries’ exporting capabilities. After the economic crisis experienced in the 80’s, Latin America, specifically countries like Argentina, Brazil and Mexico, that have based their financing in loans, stopped to raise money by these means when the crisis appeared, arising as an alternative the FDI, also on account of the foreign creditors demanding the payment of their issued resources and the warning of not giving any more financing until these countries restructure their economies, it was established the capital stock of the recipient economy. In this context, it was necessary to implement structural reforms, which were contemplated in the “Washington Consensus”, such as price stabilization and fiscal deficit control with the purpose of recovering the trust to investors and reactivating the capital flow through loans or foreign direct investment aimed at Latin America. In 1990, foreign direct investment became the primary source of external financing to peripheral countries (Aitken y Harrison, 1999:1).