Foreign direct investment in Brazil, Russia and South Africa (Dissertation Sample)

FDI AND ECONOMIC GROWTH IN BRAZIL, RUSSIA AND SOUTH AFRICA
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Abstract
Worldwide foreign direct investment (FDI) influxes have favorably amplified over the last decade as a form of production capital in host countries, prompting more interest in FDI attraction to emerging and less developed economies. The upsurge of FDI by corporations has been associated with the rise in the amalgamation of nationwide economies.
The aim of this study is to discover the influence of FDI on economic growth in three BRICS countries namely, Brazil, Russia, and South Africa. The focus will be to illustrate the extent of FDI impact on three macroeconomic variables defined by inflation rate, trade activities (imports and exports), and lastly, gross domestic product (GDP) which are considered the main determinants of economic growth. First, the study explicitly seeks to understand the characterization of FDI and economic growth. Secondly, the paper examines the relationship between FDI and economic growth. Finally, the control of FDI in the Brazilian, Russian and South African economies is gauged by qualitative and quantitative measures.
The qualitative measures entailed analyzing the most recent literature on macroeconomic variables linked to economic growth in BRICS countries whose descriptive statistics can be found on reliable sources to represent economic growth in this study. Comparison trend analysis was used as the quantitative method using secondary data obtained from the reliable source, World Bank indicators on the World Bank website. The period under study was from 1992 to 2016.
The results showed the marginal influence of FDI influx on GDP of Brazil and Russia with no effect on the GDP of South Africa. For imports and exports, the high influence was confirmed on Brazil and Russia and again no effect on South Africa. FDI influx had no impact on all three country's inflation.
Introduction
Worldwide foreign direct investment (FDI) inflows have favorably amplified over the last decade (Alzaidy, Ahmad, & Lacheheb 2017, p.382) as a form of production capital in host countries (Froot 1993, p.1: Nathanael 2015, p.213), prompting more interest in FDI attraction to emerging and less developed economies (Wan 2010, p.52). The upsurge of FDI by corporations has been associated with the rise in the amalgamation of nationwide economies improving transnational trades (Akgun, Hopoglu & Kunu 2015, p.173) leading to globalization.
In emerging economies, FDI has been considered as one of the key drivers in revolutionizing the prolific organization of economic development (Castro, Fernandes, & Campos 2013, p.231). OECD (2002, p.5) summarized the benefits of FDI to include; elicit technology advancement, assist in reducing unemployment, motivate cross-border assimilation, develop competitive business culture and boost innovation.
Additionally, FDI may progress ecological and societal corporate policies in the operating country through initiating safer environmental technologies (OECD 2002, p.5) to implement compliance to international environmental standards. To add, international firm’s value chains are instituted within local operations which encourage production in merchant companies (Pelinescu & Radulescu 2009, p.154) to be specific, contracts may be formed between domestic merchants of intermediary materials and the international customers based locally or amongst international merchants of intermediary materials and their local clients within the host country of operations (Alfaro, Chanda, Kalemli-Ozcan, & Sayek 2010, p.243).
On the other hand, possible downsides of FDI in host countries may include a weakening of the balance of payments as revenue proceeds are repatriated and imports increase through importation of amenities, foreign professionals, and the high tendencies of multinationals to import funds and functioning requirements not accessible in the host region (Ali, Dr. Zia, & Razi 2012, p.1). The damaging environmental impact of industrious investments and increased competition in local industry players have been highlighted as effects of FDI inflow (OECD 2002, p.6). Poor governance quality is also observed as a negative impact of FDI on hosting regions (Kuzmina, Volchkova, & Zueva 2014, p.2).
In the long-term, the role of FDI supplements the formation of better fiscal policies and other developmental policies to attract foreign investment (OECD 2002, p.5) and thus lead to improvement of the whole economy and society (Dr. Sharmiladevi 2017, p.47). Not only is FDI important to host countries, FDI is also important to multinational companies in increasing earnings and expansion (Nistor 2014, p.577-578).
With the current setting in developing economies, coupled by the extensive research pointing at both positive and negative effects of FDI in the economy of hosting countries, induces interest to evaluate which effect supersedes the other, thereby stimulating research curiosity to unearth the relationship between FDI and economic growth in diverse economies (Shehaj & Haderi 2015, p.99).
The aim of this study is to discover the influence of FDI on economic growth in three BRICS countries namely, Brazil, Russia, and South Africa. The focus will be to illustrate the extent of FDI impact on three macroeconomic variables defined by inflation rate, trade activities (imports and exports), and lastly, gross domestic product (GDP) which are considered the main determinants of economic growth.
First, the study explicitly seeks to understand the characterization of FDI and economic growth. Secondly, the paper examines the relationship between FDI and economic growth. Finally, the control of FDI in the Brazilian, Russian and South African economies is gauged by qualitative and quantitative measures.
To achieve the stated objectives, the remaining part of the paper is organized as follows. Part two of the paper begins with describing FDI and economic growth, followed by highlighting the link between the two economic variables. Historical literature on the relationship between the two variables is showcased and part two concludes with literature associating the two variables in the countries under study.
Part three is the methodological section of the study where the processes applied in the analysis are presented. The qualitative measures entailed analyzing the most recent literature on macroeconomic variables linked to economic growth in BRICS countries whose descriptive statistics can be found on reliable sources to represent economic growth in this study, followed by describing the significance of the chosen countries under study. Comparison trend analysis was used as the quantitative method using secondary data obtained from the reliable source, World Bank indicators on the World Bank website. The period under study was from 1992 to 2016.
Part four critically explains the findings of the analysis and lastly, the summary of the key points is clarified in the conclusion. The results showed a marginal influence of FDI influx on GDP of Brazil and Russia with no effect on GDP of South Africa. For imports and exports, the high influence was confirmed on Brazil and Russia and again no effect on South Africa. FDI influx had no impact on all three country's inflation.
Literature Review
Definition of FDI
FDI is a consequence of attracting international firms to develop local associates in hosting countries (Pelinescu & Radulescu 2009, p.153). External capital flows in operating countries and acquisition of control on the local subsidiaries are the main features to describe an FDI (Mun, Lin, & Man 2008, p.11). FDI is further measured as an international investment ascribed by a foreigner owning more than 10% in a local company (Duce & Espana 2003, p.3). Gorbunova, Infante, & Smirnova (2012, p.129) estimated the factors that determine FDI inflow and concluded that FDI is affected by specific market and institutional elements.
.Castro, et.al (2013, p.232) noted that FDI transfer is varied, and may be influenced by the multinational's characteristics, rivalry among local and foreign firms and economic dynamics in host countries and foreign investing economies leading to a lack of accord enlightening why foreign companies are directed towards certain regions.
Gonzalez, et al (2018. p.1-2) linked FDI to production efficiency in host countries through various channels. Effective utilization of advanced technology and skills shared by FDI establishments’ increases efficiency in the production process. FDI also increases struggle in the marketplace and thus cumulative output.
According to World Bank data, FDI net inflows drastically rose from 710 billion dollars in 2003 to 3 trillion dollars in 2007 representing approximately four times growth globally.
Graph F: World FDI Net Inflows (Current US$)
Source: World Bank national accounts data, and OECD National Accounts data files
Definition of Economic Growth
Economic growth is viewed as the efficient utilization of resources to aid in the production of more output using the same inputs through economic effectiveness (Almfrajia & Almsafir 2014, p.207). Similarly, Feldman, Hadjimichael, & Lanahan (2016, p.6) explained economic growth simply an improvement in the total output of a country and is easily quantifiable. Measurements that are used to display economic growth include GDP, income, and employment among others (Malizia, E. E. N.d, p.31). The graph E below shows the GDP growth (annual %) main descriptor of economic growth.
Graph E: World GDP growth (Annual %)
Source: World Bank national accounts data, and OECD National Accounts data files
The link between FDI and Economic Growth
Margeirsson (2015, p.10) highlighted that trade surge triggered by FDI ...