The increasing inflow of Foreign Direct Investment (FDI) over the years
to emerging economies is seen with great optimism by governments and
policy makers since it is expected to uplift the economic position of
the host countries through positive spill-overs. Various studies have
examined the impact of FDI on the domestic firms, economic growth and
productivity of the host economy, highlighting the positive
externalities that make this investment a worthwhile option to explore.
However, the fact that this investment may sometimes negatively affect
the output of the host economy or the behaviour of domestic firms is
not thoroughly explored, especially with respect to developing
economies where FDI may cause domestic firms to exit or prevent the
establishment of small and medium enterprises. Furthermore, most of the
previous studies have focused on either the domestic industry or the
industrial output or exports without simultaneously analysing the
effect on a combination of such factors. This study therefore
incorporates the effect of FDI on domestic industry in terms of the
presence, entry and exit of domestic firms and the growth in output and
export orientation of the host economy. The relationship between FDI
with the different variables that contribute to the domestic
competition and industrial expansion and growth has been analyzed. The
results of the analysis show that while FDI has a strong association
with the output and export growth of the host economy; it does not
appear to add value. Simultaneously, it causes a large number of local
firms to exit the industry. Nonetheless, it appears to stimulate the
local industrial growth by allowing new firms to enter and enhancing
the market capitalization of listed firms. Furthermore, the number of
micro, small and medium enterprises (MSMEs) and their employment rate
also shows an upward trend with FDI. The growth in exports, especially
high technology exports stresses on the presence of technology
spill-overs to the host economy. This study considers the impact of FDI
on the host economy by taking into account various factors, each of
which can be a priority for policy makers and an incentive to attract
foreign investment. However, it is essential to understand how FDI
affects the industry on the whole by studying the impact on each of
them in isolation. The research aims to inter-relate the literature
available on knowledge and technology spill-overs and competition to
understand how local firms derive benefits from FDI in their country.
The objective is to understand if increased inflow of FDI prevents the
entry and growth of domestic firms in emerging economies.
Simultaneously, it strives to determine if the entry of a foreign
enterprise leads to an exit of local firms from the industry.
Additionally, it is also aimed at understanding how FDI can shape the
industrial output and export competitiveness of the host country.
does FDI affect the entry and exit of domestic firms in the host
FDI induce industrial expansion in the host economy?
local industries in emerging economies experience an increase in the
output and export growth as a result of FDI?
words – 82 pages in length
- Excellent analysis
for economics students
of Recent Trends in FDI
of FDI; Perspectives of the Home and Host Economy
Types of Spill-overs and Impact on the Productivity of Host Economy
Competition; Eroded or Stimulated?
Competitiveness of the Host Economy
Impact on the Indian Industry
of the Research
of the Research
Research Findings and Analysis
of Key Findings and Implications for Policy Makers
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