Foreign Direct Investment: Motivations, Trends and Challenges

Foreign Direct Investment: Motivations, Trends and Challenges

Carmen Veronica Zefinescu (Petroleum-Gas University of Ploieşti, Ploiești, Romania), Marian Cătălin Voica (Petroleum-Gas University of Ploiesti, Ploiești, Romania) and Panait Mirela (Petroleum-Gas University of Ploiesti, Ploiești, Romania)
Copyright: © 2019 |Pages: 13
DOI: 10.4018/IJSEM.2019040103

Abstract

The world economy is in constant change, the action of multiple forces is sometimes divergent. Transnational corporations and foreign direct investment (FDI) are one of the most important forces contributing to the remodeling of the world economy and host countries. In this article, the authors focused their analysis on the factors favoring the attraction of FDI by the host countries and the motivation of the transnational companies to investment abroad. In the final part of the article, the authors analyzed the flows of FDI for the period 2000-2014. The objectives of this article are to detect changes that have been made to companies' determinants to invest abroad and the evolution of FDI flows, given the period of global economic crises.
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Introduction

Globalization, the integration of markets and the speed of dissemination of information on the world economy have led to a strong interdependence among states. At the same time, it generates a faster propagation of the influences generated by events that may have positive or negative effects on economic results. Reducing barriers to international transactions, integrating economies and opening countries to foreign investment flows, and enhancing competition are the result of a growing globalization manifested through internationalization of business.

Transnational companies compete internationally in the goods and services markets and countries compete to attract international production factors (Pelinescu, & Rădulescu, 2009; Raluca, 2010). Thus, a country is attractive to foreign investors if it offers a seated legislative framework, taxes, skill labour, competitive both in terms of costs and specialization, etc. (Matei, 2004; Rădulescu & Druică, 2011; Zaman, & Vasile, 2012; Nistor, 2012; Iacovoiu, 2013, Beatrice, 2013; Blăjuț, 2014).

Foreign investment is an important aspect of national and international economic life. Transnational companies ensure the transformation of internationally available financial flows into most favorable investment. Over time, foreign investment has shown the potential for boosting the economy by accelerating the speed of development of host countries (Gheorghe et al., 2012; Zaman et al., 2011; Anghelache et al., 2013; Anghel et al., 2016; Comes et al., 2018).

Historically, foreign investment has been studied especially after the Second World War, when they began to gain global importance and to have a significant impact on the host countries, the flow of international financial flows and international trade. The analyzes performed are based on statistical or econometric calculations that track the impact of FDI on certain economic indicators specific to host countries or quantify the effects of FDI on the development of host countries. (Subic et al. 2010; Popescu, 2014, Iacovoiu, 2015; Voica et al., 2015; Podasca, 2017; Panait & Voica, 2017). The implications of FDI are not only of an economic nature; there are studies that also analyze the impact of FDI on other issues such as social responsibility or environmental protection in the host countries. (Bodea et al., 2010; Matei, 2013; Panait & Petrescu, 2015; Podasca, 2016; Bucuroiu & Petrescu, 2017; Petrescu, 2017; Golubeva, 2018).

Over time, several theories have been issued that have attempted to explain the FDI formation mechanism, but due to the complexity and evolution of the determinants that underlie new FDIs, these theories need revisions and continuous additions to incorporate the latest innovations from the sectors where they are located. The effects of FDI on host countries were nuanced, in addition to positive effects, more and more specialists have drawn attention to the negative effects of FDI on issues such as environmental pollution, staff layoffs or obsolete technology transfer. Hence, the impact of FDI on economic growth and sustainable development varies according to the country-specific conditions and characteristics of the FDI. The purpose of this article is to present the importance of FDI in the world economy, but these investments must not be considered as a “miracle drug” that should be administered in the same way to all host countries, the specificities of each national economy are essential for the potential of FDI's contribution to economic growth and sustainable development

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