MBA Finance Dissertation

Title: A study on the effect of Foreign Direct Investment on Asian economies: A case study of India.

Table of ContentsChapter – 13Introduction31.1 Introduction31.2 Background of the study41.3 Research Aim51.4 Research Objectives51.5 Research Questions51.6 Scope and Importance51.7 Rationale of the study61.8 Overview of the study7Chapter – 28Literature Review82.1 Introduction:82.2 Theoretical trends of Foreign Direct Investment92.3 FDI Theories:102.3.1 The monopolistic advantages theory112.3.2 Transaction Cost and Internalization Theory122.3.3 Ownership, Location, and Internalization (OLI) Advantages Theory132.3.4 Product Life Cycle (PLC) theory142.3.5 Horizontal FDI, Vertical FDI and Knowledge-Capital theory162.3.5.1 Horizontal FDI172.3.5.2 Vertical FDI172.3.5.3 Knowledge Capital Theory18Types of FDI: Horizontal, Vertical and Export-platform182.6 Determinants of FDI19Exploiting new markets192.6.1 Search for productive efficiency202.6.2 Search strategic assets202.6.3 Macroeconomic Determinants of FDI212.6.4 Microeconomic determinants of FDI212.6.5 Foreign investment and development222.6.6 Effects of Foreign Direct Investment (FDI)222.7 FDI contributes to developing countries by promoting the following:232.8 Features of countries seeking to attract FDI242.9 Countries that benefit most through FDI25

2.10 Summary25Chapter – 325Research Methods253.1 Research Philosophy263.2 Research purpose263.3 Research Approach273.4 Type of research283.5 Research Strategy283.6 Data Collection293.6.1 Primary data collection293.6.2 Questionnaire Formation303.6.3 Secondary Data Collection303.7 Sampling Method303.7.1 Sample selection313.7.2 Sample size323.8 Data Analysis323.9 Research Limitation323.10 Ethical Consideration32Chapter – 432Data presentation and analysis324.1 Introduction324.2 Data analysis334.3 Conclusion48Chapter – 549Results and Discussion49Chapter - 654Recommendations and conclusion546.1 Introduction546.2 Recommendation and Conclusion:54Bibliography56

Chapter – 1

Introduction 1.1 IntroductionThe purview of FDI in developing nations is growing and impacting the economy of the nation. Hitherto, concepts of liberalization and globalization played a vital role in the development and growth of the economy of a nation (Chen, 2011). The emergence of FDI, by the root of globalization has increased the value of economy with increased number of industry, flow of cash, technology know-how, infrastructure development and surge in the disposable income of the developing nations.The benefits listed by the growth of FDI are the key terms essential for any nation to improve its wealth and economy(Wren, 2012). This study focuses to measure the impact of FDI in the economy of Asian nations. Most recently, India relaxed its policies on FDI and have started to attract more international companies across the nation. FDI in developing nations has the intensity to alter the structure and indigenous business model. The changes stimulated by FDI can impact the economy positively and negatively. The focus of the study is to understand the impacts of FDI on Indian economy by analyzing the scenarios prevailing in the country and the continent. Unscrambling the sensible details lie with the impact of FDI on the economy is very essential to frame combating regulations to face the international market changes.As the case of FII, FDI is also subject to impacted by the international market changes (Chen, 2011). To complete the study, the research blueprint is created with the proper methodology for the research. The aim of the study indulges with the economy, which is a societal factor with the wider scope need to study with great care data collection. It uses a questionnaire method to collect data, interprets using SPSS and infers findings in order to suggest a clean recommendation to the nation to combat the negative shades of FDI (Bougie, 2010).1.2 Background of the study

Data acquired from the United Nations Conference on Trade and Development (UNCTD) depicts that 30% of the world’s FDI is invested in Asia (Nair, 2013). China outshines the market with impressive growth of 15%. Following China, ASEAN 5 nations like Indonesia, Malaysia, Philippines and Singapore tops the chart. India’s place in the world FDI forum is unstable as it went with changes in regulation most recently(Nair, 2013). In the year 2013, India came with changes in the business format of FDI. The multicultural nation is having a much more regional disparity and infrastructure challenges(Nair, 2013). The growth rate of FDI in India is 8% presently. Considering the facts disseminated it is clear that the Asian economy is the highest receiver of FDI investments, it alarms the need for creating a net to save the economy from unexpected economic slumps in the western nations. Sudden economic clout can push the Asian region to unstable economic condition (Blaine, 2009). FDI has the composed part like supports in development of infrastructure in the nation, strengthens the logistics, increase the consumption of locally grown due to the sourcing Cap by Government of India, Technology sharing, which benefits the host and home nation, creates employment, improves quality of education, and increase the disposable income. Increase in foreign exchange, etc. FDI is the perfect mix of threats and opportunities and has a greater scope in the growth of the economy (Blaine, 2009). From the scenario, it is clear that, India is studied as a sample among the well performing Asian economies. A previous research on the impact of FDI on the economy has given correlations positively. This study intends to understand the positive and negative impact of FDI on economy in India as an instance. 1.3 Research AimThis research aims at assessing the impact of FDI has on economic growth in the Asian countries. It critically evaluates the effects of FDI on economic growth and development of Asian countries, with special focus to India. 1.4 Research Objectives❖ To examine FDI’s overall benefits❖ To investigate the effect of FDI in Asian countries economic growth and development with a special focus on India.

❖ To evaluate the extent to which economic growth of Asian countries can be impacted by FDI❖ To analyze the Asian countries on how to effectively utilize FDI in order to achieve more growth.

1.5 Research Questions❖ Is there a correlation between economic growth and FDI?❖ Does FDI have a positive or negative effect of Asian country's economic growth?❖ In what ways Asian countries can utilize FDI more effectively in order to pace up their economic growth?❖ What level of focus Asian countries has on FDI?1.6 Scope and ImportanceThe study is designed to understand the FDI and its impact on the economy of the country. This study engages in determining the impact of FDI, its benefits and tries to establish an effective path of utilization. This research examines the impact of FDI on the economy in a broader perspective; it could accommodate the positive and negative impacts. The outcome of the research will add new insight, it will establish the relationship exist between the FDI and economy. When discussing the positive and negative impact of the research it will pave way to the understanding of FDI’s impact on the growth and development of India (Chen, 2011). This descriptive study analyzes the case with understanding from its growth point and move towards the current phase. The study on assessment of the impact of FDI on the economy can pour new insights to the researches existing pioneers in this research work (Bell, 2010). The scope of the study is multifaceted; it develops an understanding about the prevailing economic condition of the country and helps to devise the new path to work closely with FDI. This study will demonstrate the growth, which FDI can present to the society(Babin, 2012). The study is having a greater validity, since it utilizes the newest information. This study has a special focus to India; it reads the impact of FDI on Indian economy. New ideas generated out of the study can help in India’s turf in devising a proper strategy to face

the ill effects of FDI. Indian population can understand the close movement of FDI and the economy of the country and how it impacts the society (Nair, 2013). 1.7 Rationale of the studyResearches in the past were concentrating more on the development and support poured by the FDI to the economy. But it is very essential to know about the drawbacks of FDI to the Indian economy. There are certain issues that can affect the economy to a greater extent, which will eventually lead to drastic fall of the economy. Economy constructed predominantly with FII and FDI is always vulnerable to the international changes (Bell, 2010). FDI’s impact to the economy need to be analyzed with focus to the ill side (Nair, 2013). There exist misinterpretations in identifying the extent of openness a country can exhibit to the global platform of FDI. The research focuses India, since the country had confrontations in opening the economy in certain sectors. They have introduced new caps for each sector and certain sectors are allowed 100% FDI. It requires demonstrating an unambiguous plan to face the changing market trends and demands. The study on impact of FDI on the Indian economy is essential to blueprint the future of the FDI in the context of its effects in positive and negative ways(Blaine, 2009). 1.8 Overview of the studyIntroductionThe first part of the study includes the overall introduction about the research. It encapsulates the brief introduction about the focus of the study, objectives, aim and the research questions. It explains the importance and scope of the study. Review of literatureReviews of literature identify the various past research works and infuse the knowledge about the FDI and its impact on the economy. The collected literature sources supports in identifying the factors involved in the study. It shapes the focus of the research. Research MethodologyResearch methodology includes the scientific steps involved in designing the study (Anderson, 2012). This part of the study provides a definite shape and path to carry out the research without

deviating from the objectives of the study. It includes the research philosophies, approaches, strategies, Data collection methods, Sampling techniques, analysis and Interpretation (Babin, 2012). Data presentation and analysisData presentation and analysis uses the various statistical techniques to analyze the data collected through the primary data collection. It produces the results of the analysis in the form of graphs, charts and tables (Bougie, 2010).Results and DiscussionThis is the findings part, which infers the data presentation and analysis part with the results accumulated. It interprets and critically discusses the findings in order to get a greater understanding and to find a suitable recommendation(Anderson, 2012). Conclusion and RecommendationsFinal part of the study includes the suggestions derived from the results and discussion part. It uses the discussion, graphs, and charts as an evidence to arrive at apt recommendations(Anderson, 2012).

Chapter – 2

Literature Review 2.1 Introduction:

The global crisis and its depth from the second half of 2013 have consolidated foreign direct investment (FDI) as the most stable flow of international funding. In general the trend of flows has been the recovery, despite the consequences of the crisis and slow growth in developed countries, but with marked regional differences that were intraregional (Froot, 2013).Foreign Direct Investment (FDI) is an equity investment by a natural person or a legal person (institutions and public companies, private companies, etc.) in a foreign country. In the destination country, this input of capital can be done through the creation of new production facilities or participation in established companies to form a subsidiary of the investment company. According to (Balasubramanyam, 2013), FDI aims to exert long-term control of the acquiree or investee, and the established criteria for defining it is that,property acquired by the parent company is at least 10% of the subsidiary (Ketchen, 2009).According to the capitalistic paradigm, FDI is a driving force of development, especially for the recipient economies. FDI has begun to gain greater importance since the late eighties. When the International Monetary Fund and World Bank got promoted in the peripheral countries, implementation measures advocated by the Washington Consensus liberalized the financial context. FDI, thereafter, went on to become one of the main sources of funding for developing countries (Bell, 2010). The motivations for these corporations to invest in other countries are, among others, obtaining natural resources and low labor costs and access to larger markets (Cohen, 2011). Ultimately, the driver of FDI is seeking an increase in the profits of the company. The definition makes clear that the term FDI is an inadequate description; FDI can take place without any real investment happening in the economic sense (Cohen, 2011). For example, FDI occurs when a company from one country acquires a title that carries with it the control of an enterprise in another country (Fier, 2012). As a result of this transaction any

investment does not occur in the economic sense, assuming that the real capital stock held by the second firm remains unchanged, as is likely to happen (Dale, 2013). Similarly, FDIcan occur without any transfer of real or financial resources between countries. If, for example, the hypothetical transaction that just discussed is financed by a loan from the recipient country, no transfer takes place (Narula, 2013).2.2 Theoretical trends of Foreign Direct InvestmentWhat is the cause of these flows? This is the theme of the rest of this section. What follows is not intended to be a systematic review of the aforementioned determinants of foreign direct investment or international spread of business activities; it is, rather, an effort to review the major theoretical trends, which may help explain the phenomenon of FDI in the past decade(Bass, 2012).A useful point of view is the observation that for a business asset (asset in this context can mean an entire company) to fall under foreign control, the foreign owner (or potential) will assign greater value to the national asset owner (Kiely, 2010). (In the case of FDI in start-ups, the domestic entrepreneur is hypothetical, but if the asset is a preexisting locally owned company, to pass under foreign control it must be sold by the owner or owners, and those nationals will do so only if the price offered exceeds the current value) (Blomström, 2011).There are two ways that the foreign owners value the asset more than the national ownership. First, the foreign owner may believe that the asset will generate higher profits than what is being generated by the existing domestic owner. The expectation of higher earnings by foreign owner may be a result of, for example, the belief that the foreign owner can manage the asset better than the national owner, so that the efficiency can be increased and therefore increase company profits (Bass, 2012). This statement implies if the company operates in a sector that is characterized by some degree of concentration of the vendor companies (Cohen, 2011). If the industry were perfectly competitive, the benefits disappear (Chi, 2014). Second, the foreign owner can discount future benefits from the asset to a higher rate of capitalization (i.e., a lower discount rate) than the national ownership. If so then the present value of the asset is higher for foreign owner than for the domestic owner given

the future stream of benefits(Bhojanna, 2009).2.3 FDI Theories:The foreign direct investment (FDI) is one of the three mechanisms of intercontinental resource movements. The conception of FDI in internationalizing of trade was introduced by the influence of globalization. The International Enterprises steered FDI to work for the overseas markets or to feat the variations in the cost of manufacturing among nation states (Klug, 2011). A range of transnational trade theories were introduced to gauge the impacts of FDI movements on the host and the home countries of world-wide enterprises(Brockett, 2012). Listed below are some of the most crucial theories and a brief them: • The monopolistic advantages theory • Ownership, location, and internalization (OLI) advantages theory• Product life cycle (PLC) theory • The knowledge-capital theory• Types of FDI: horizontal, vertical and export-platform2.3.1 The monopolistic advantages theory The Monopolistic Advantages Theory is the methodology of the international corporates that describe the reasons for the competition of businesses in overseas settings in contrast to the native contestants (net, 2012). The businesses that make investment in out of the country enjoy comparative prevailing benefits in overseas in contrast to the investments made in the native.• Greater knowledge and technological development• Cost-cutting scalesThe Cross-border proprietorship is the one of more than a few reasons for the growing participation of multinational enterprises (MNEs) and multinationals corporations (MNCs)in the world-wide economy; this lessens the number of self-governing businesses in any specific international trade and upsurges the business concentration. Generally the large MNEs coming into the international market gain extensive economic benefits in comparison to the local competitors due to their size (Chi, 2014). As a result, the MNEs manipulate their economic benefits in

manufacture, supply and peculiarity in manufactured goods throughout the countries at minimal cost and operate under inadequate opposition earning anticompetitive proceeds. The imperfection of the world-wide market has effects in the relative benefits of MNEs in a particular market; the market power makes available an advantageous environment for the MNEs (Fier, 2012). All imperceptible intellectual and innovative high-tech intellectual investment of the business convene an economical benefit, leading the business to an incomparable difference in commodities (austin, 2010). The on the edge cost for the relocation of the superior knowledge assets to distant nations will be much low in comparison to the resident multinationals to invest the full cost to create such assets (Casson, 2010).This theory of FDI as stated by Hymer, is the special features of benefit the MNEs/MNCs enjoy such as, product names, brands, administration and advertising expertise, limited or cutting-edge technologies, entrance to low-cost funding, etc(Lyle, 2010). While the resident business is aware of the state of affairs of market, the legitimate and formal structure of business undertakings and sense of duty of indigenous trade whereas the MNEs/MNCs can go for the same with a substantial cost through FDI (Fier, 2012).In addition, the overseas businesses put up with the costs of operating at a distance because they are apprehensive about the technical hitches of functioning in the host country’s inexperienced business carry outs. Therefore, the FDI methodology makes it profitable for the overseas businesses to have certain advantages over the resident businesses. And some market imperfections must slow down the native corporations’ access to overseas corporations’ advantages(Kollmann, 2010). For that reason, the FDI is well thought-out to be a premeditated achievement by the business to the advantage of market limitations as well as a mechanism to evade market inadequacies (Macmillan, 2012).2.3.2 Transaction Cost and Internalization TheoryRonald Coase emerged with the theory of Transaction Cost and Internalization with the purpose giving details about the cost-effective trade and industry movement of the businesses. The businesses are in in existence by resourcefully reducing the cost of manufacture and exchange within the associations of the businesses (Yue, 2011). Williamson contends that there are certain costs that occur for using

the marketplace. And the business dealings need to be executed within the associations of the business in order to avoid the transaction cost that come about by using the market apart from the incurring of the in-house business costs (Luo, 2013). The transaction costs can be considerable and be different from one industry to another; this cost includes the time and cost of exchanging, lettering, and regulating the execution of treaties. The scope for internalization increases when this cost is too high and rises to adversative consequences of unscrupulous behavior.When associating the different costs with the market networks and the in-house costs of the associations of the business, curtailing the transaction costs regulates the type of business deal cost used for each transaction (Weresa, 2010). Therefore, offers the preeminent alternate for working out operative control over overseas business processes.The essential aspect of DFI is the strategy of more externalizing of business to implement operational control over overseas investments and procedures; the business-specific benefits can only be realized by attaining control over effective operational procedures. The imperceptible resources called the irreplaceable resources are the grounds for the international businesses to single out their merchandises in diverse markets and safe and sound cash flow schemes (Patel, 2012). In the main, the leading international businesses in their trades are the ones that strive on overseas venture; these international businesses immensely work on publicizing and presenting, finance more in investigation and improvement, hire many technologists, engineers, and proficient staff, and trade idiosyncratic products to have easy access to market supply systems (Weigel, 2012).2.3.3 Ownership, Location, and Internalization (OLI) Advantages TheoryThe wide-ranging methods draw three essential and appropriate circumstances for the FDI; the business-specific (proprietorship) advantages, competences in internalizing of graded authority advantages, and host nation habitation-specific benefits. • O – Ownership detailedThe perceptible resources such as, workforce and business principal • L – Location detailedMarket configurations, government guidelines, civil, lawful, and social status quo

• I – Internationalization detailedInnate aptitude to market through its in-house branches

The model of the business, principle of the place of trade and industry, proprietorship benefits that include merchandises and trade processes secured by the exclusive rights of patents, trademarks, and 19 other trade secrets that are the one and the same as the business-specific benefits (Balasubramanyam, 2013). These are fundamentally identical to the dominant recompenses discussed in the aforementioned topics. These proprietorship recompenses provide the businesses with market supremacy and reasonable leads over the native businesses (Chen C. , 2011). The proprietorship benefits are predominantly subjugated on the inside of the business; deriving internalizing recompenses are the benefits the businesses achieve from the mutual power of their value added operational activities (Moran, Foreign Direct Investment and Development, 2013). The business lessens imitation of the technological know-hows by accrediting the innovation and technology the business with another business or sharing them in a shared venture business. The operative decision-making and quality control also help the business to uphold its reputation. In order to preserve the established status of the business, the business need not involve in allocation rating, exploration and concession costs, and in the process of subsidizing and price distinguishing(Casson, 2010).The motivations of the business to generate revenue out of the country are the location benefits. The locational recompenses of a nation influence the location of the overseas operations of a business choice. The business bases its location choice not merely on the availability of the natural resources of a location. Judging beyond the natural resources making an allowance for the most significant necessities of a business such as, the traditional, lawful, governmental, influential market structure environs, etc., for a business to operate (Nair H. , 2013). The nations’ management rules such as, costs, allowances, subsidizations, and other non-tariff hitches that affect the decision of a business to locate in a foreign country also come into main points of attention. These overseas management guidelines briefs the reasons for businesses to setting up manufacturing units out of

the country rather than exporting the goods manufactured in the home business entity of their native country (Wei, 2010).The conformation of OLI recompenses defines the outline and procedure of FDI as follows:• A suitable proprietorship leads for a successful competition with indigenous businesses in overseas nation states.• An apparent internalizing benefit of a world-wide spreading of proprietorship gains within the units of the business itself not going to the extent of authorizing the copyright for the use by others. • Based on the appeasing of both of the aforementioned points, the business decide on the locational benefits of either commencing a resident manufacturing unit in the host country or exporting the manufactured goods from the native country (Chen C. , 2011).The more proprietorship -specific benefits of a business is with its overseas contestants, the greater is the inducement to internalization of their uses (IMF, 2011). If a product is more research-demanding, technology-demanding, and market-demanding then the overseas proprietorship of a trade becomes sophisticated reaching the degree of the cutting-edge. The more a business uses its focus in using the proprietorship and internalizing benefits in an overseas country, the greater is the likelihood of carrying out FDI(Neuhaus, 2011). 2.3.4 Product Life Cycle (PLC) theory Product Life Cycle Theory (PLC) gives details about both the business and the FDI. In the beginning, when a business invents manufactured goods, it creates native relishing of its dominant benefits in the trade market, by specializing and exporting. The business ensures that the manufactured goods gain consistency in the growth of the manufacturing phase across the native country of manufacture (Baker, 2010). After gaining the consistency, the business inclines to put in overseas and carry across from the native country in order to retain its domination influence of the goods. The competitors of the native country can also put in in the market of the same overseas country (Fier, 2012).The first stage of PLCA new product period is the first phase of the product life cycle. The first phase is greatly singled out and the product is manufactured by a team of skillful labors at relatively high cost. This new

merchandise is also manufactured in some degree to a fewer in number due to the unidentified eventual market prospective and ideal manufacturing performance. At this stage of phase one, the engineering of the manufactured goods is secured to the native of the business and the distant trades are done primarily through exporting (Chen C. , 2011).The second stage of PLCAn established product period is the second phase of the product life cycle. In this phase, the product has reached an assured level of calibration, an increase in the product request, and a more long-winded knowledge in product manufacturing(IMF, 2011). The preference for setting up of the manufacturing units in the overseas than carrying across from the native country is intensified by the desirability of the opening out of the overseas market. The setting up of the manufacturing units in the overseas becomes the favorable option in relative comparison to the cost of production, especially the cost of labor (IMF, 2011).The last stage of PLCA time-honored reputable product period is the last phase of the product life cycle. In this phase, the product is exceedingly standardized with a common manufacturing process of the goods; and the value of the product as the most important element of business growth defining the reasonably priced aftereffects. The manufacturing of product comes to a still stage with no other key advancements in production; the product now has developed into an article of trade and so the price becoming a more important marketing point than the trademark of the business that manufactures it (Moosa, 2014).Making use of the advantage of the lesser labor rates, the businesses from the advanced countries focus transferring the labor-demanding manufacture to the still progressing countries. The product life cycle envisages that the manufacturing situated in the U.S. in the beginning, subsequently moves to other advanced countries in order to meet the demand of the market; and in due course moves to developing countries where the labor costs are the lowest(Fier, 2012). 2.3.5 Horizontal FDI, Vertical FDI and Knowledge-Capital theory

The development of various theories of the multinational business enterprises happened in three different points in time. The FDI did not drive to come about between indistinguishable countries. In contradiction of the pragmatic explanations that integrated the idea of cumulative profits to scales and deficient race to the outdated mock-ups (Luo, 2013). Consequently, the theory of the multinational enterprise was divided into two fragments.• Vertical FDI

In this phase, the business organically separates the manufacturing stages; building on the principle of principal movements, where the direct venture of the business was in actual fact an overseas manufacturing unit (Nair, 2013).

• Horizontal FDIIn this phase, the business manufactured the same products or services in different locations.

In the “Knowledge Capital” model (KC), which is considered to be the third phase, associates the two phases of Vertical FDI and Horizontal FDI.The descriptions and definitions of both vertical and horizontal FDIs have been based on four different factors of multinational business (Chi, 2014).• Investment purpose of business• Factor proportioned overseas undertakings• Topographical circulation of trades of the overseas associate• Terrestrial split-up of the manufacturing methods by phases, which is very akin to fragmentation.Indeed, a clear distinction between horizontal and vertical FDI seems impossible due to the fact of linking the horizontal FDI to bring some facilities from the parental business while the business has the replicas of the manufacturing happenings in more than a few nations.2.3.5.1 Horizontal FDIThe occurrence of affirmative trade costs and business-level cost-cutting measures are the two aspects that make the horizontal FDI more importantly applicable for the horizontal multinationals. The foremost ambition of the horizontal FDI is to evade conveyance costs; developing introduction into an overseas market that can only be functioned locally. The multinational undertakings that come about among identical countries are envisioned by the horizontal models (Klug, 2011).

The horizontal FDI can be compared to the costs and the benefits on either side of an equation. The additional costs of big business occur with the establishment of an overseas manufacturing unit instead of serving the market by exporting native goods. One side the manufacturing cost and on the other hand the cost savings by changing from exports to local manufacturing to evade the conveyance and tariffs costs with added profits of close vicinity to the marketplace and diminutive distribution and rapid reply to the market. As a consequence, multinational businesses prefer to go for the horizontal FDI if profits be greater than the costs (Chen C. , 2011).A wide range of features can be elucidated to the flow of FDI through the outcome of the simulations of horizontal FDI(Chi, 2014).• The horizontal FDI lessens line of work movements by serving the market through native manufacture instead of exports• The horizontal FDI is pragmatic when the costs of importing are great compared to costs of capitalizing. • The horizontal FDI becomes a matter-of-fact when a new business consents the occurrence of the fixed costs over an enormous measurement of manufacturing expected to come about in a big overseas markets. • Finally, the significance of native production surpassing the simple calculation of remaining costs from the termed compromise (Bass, 2012).2.3.5.2 Vertical FDIThe Vertical FDI is applicable to a multinational business that in nature divides its making by different stages. The manufacturing is divided in order to manipulate modifications in the costs of comparative elements (Kiely, 2010). The manufacturing phases in different countries are conducted sequentially one after the other, this is termed as vertical FDI. The demonstrating of the vertical FDI is based on the idea of diverse fragments of the manufacturing procedure having diverse input requests (Kollmann, 2010).The demonstrating of vertical FDI was usually motivated by dissimilarities in benefactions of the business features. Finally, the costs of line of work and tariff hurdles should be low in order to make the split-up more valued (Patel, 2012).2.3.5.3 Knowledge Capital TheoryThe “Knowledge Capital” is a prototypical method used for associating the methods of the horizontal and vertical FDI. The

features costs and market entree are nested in this one model of Knowledge Capital Theory as the motivating factors for horizontal and vertical FDI. Based on the features of nation states, both types of FDI can arise endogenously from the single ideal, called the “Knowledge Capital” (KC) theory. Because, the knowledge is substantially moveable; and it functions as a combined input to several manufacturing units, irrespective of the type of FDI(Chen C. , 2011).The KC-prototypical comprises three stable frameworks of varieties of two-goods, two-elements and two-countries. • The first one is the horizontal multinational business that replicates the identical doings in the overseas. • The second one is the vertical FDI that splits up the manufacturing process and localizes the high-skilled labor demanding units in the high-skilled labor rich native country and the low-skilled labor demanding manufacturing in the low-skilled labor abundant host country. • The third one is the business of the native country that functions in the overseas market by exporting.Both the horizontal and vertical FDI have a constructive influence on making the international manufacturing process more competent by evading the replication of the business undertakings, differing in the influence on earnings (Bass, 2012).Types of FDI: Horizontal, Vertical and Export-platformBased on the role of the international production policy of the parental business, the FDI can be divided in one of followings: horizontal FDI, vertical FDI, and export-platform FDI.The horizontal FDI is relevant when the horizontal multinationals manufacture the same products or services in several business units of different countries with each business unit attending the native bazaar from the native manufacture. Reinforcement of the international competitive location of the business for market pursuing is the objective of the horizontal FDI (Blaine, 2009). The vertical FDI can be termed as a trade-off between costs and benefits. This is profitable in as much as the cost reserves are higher than the costs of splitting up of the business processes. The costs of splitting up of the business can occur in different forms such as the conveyance costs, surplus costs for performing in a new country, or of obligating different parts of manufacturing done in different nation states(Brockett, 2012).

The last type of FDI is export-platform FDI is relevant for a business that uses a host country as a point of an export. The business exports the manufactured goods of the native country to the global market (Chi, 2014). 2.6 Determinants of FDIThe reasons for a company to invest in another country can be due to three basic objectives: to enter new markets, increase production through reductions in costs and to exploit certain strategic assets specific to a particular country (Fier, 2012). Exploiting new marketsOne of the main reasons that have been offered to explain the presence of FDI in an economy is the search for new markets. FDI is traditionally understood as a direct substitute for trade. Therefore, an explanatory factor for this type of FDI is the size of the target market, which can be measured by the total income of an economy or by its two components: the population size and per capita income (Bhojanna, 2009). In fact, some of the traditional explanation of FDI in the sixties and seventies was based on the strong protectionism that characterized some economies (Blomström, 2011). This was because a protected market was more attractive to invest directly. In addition, a protected economy offered an attractive captive market (ESCAP, 2014). A more modern approach, however, suggests that there is some kind of FDI that seeks a larger market. In this sense, an economy that offers commercial advantages or geographical location, could serve to attract FDI that seeks to penetrate a wider market. In this sense, this type of FDI may be associated with an increased volume of international trade and not a minor one as previously assumed (Chen, 2011).Furthermore, this type of FDI would be more common in countries that offered some type of commercial advantages or geographic location advantages.2.6.1 Search for productive efficiencyThis type of FDI seeks greater productive efficiency by reducing production costs. This may involve finding areas where the costs of certain production inputs are cheaper. This is the case of FDI transferring labor-intensive activities to areas where hard labor is abundant and wages are relatively low (Harrison, 2011). However, it is also the case of FDI that seeks greater efficiency per unit cost of labor. This implies that there is some kind of FDI that seeks not only

cheap labor but a combination of lower domestic productivity and high wages for workers. The first type of FDI (based on low wages) is the most traditional and is explains FDI that some advanced countries tend to make to their lower-income neighbors with abundant unskilled labor. For example, this is the type of FDI that were made in Japanese firms in Southeast Asia in the sixties. This is also the case of FDI by US companies in certain areas of Asia. This type of FDI is associated with investment in light manufacturing, which is abundant in labor, or the relocation of some of the industrial activity which is intensive in unskilled labor (Moosa, 2014). This explains in part because this type of FDI is usually associated with an increase in intra-firm trade(Levi, 2014). The type of FDI that seeks greater efficiency per unit cost of labor, which is not only looking for lower wages than those paid in their home country, but also to obtain relatively high labor productivity. This type of FDI is more specialized and requires a relatively more skilled labor work. This is the case of FDI for the manufacturing of complex products and seeks to shift production to the foreign market. It is also the case of FDI which specializes in professional services such as data processing (Marcoulides, 2009). 2.6.2 Search strategic assetsThis type of FDI can be divided into two quite extreme situations. First, FDI is seeking to exploit the existence of certain natural resources. This is the most traditional and ancient form of FDI. However, at present this type of FDI has been declining in the world as a result of the emergence of many other goods that can replace such resources (Swinnen, 2014). Moreover, there are FDI that seek for other more specialized strategic assets such as the highly skilled work, a certain type of infrastructure (telecommunications, for example) or the development of certain very specific skills (know-how). This is the case of FDI which seeks to develop programs for computer (software), research and development or production of goods with high technology (Fier, 2012). 2.6.3 Macroeconomic Determinants of FDISeveral authors have argued that during past decades, the existing explanations for the phenomenon FDI focused on neoclassical models of capital movements. The basic argument of these models

is that if two countries have the same production function, the rich country will have a lower rate of return on capital, if there were no financial trade flows; capital would flow to balance the yields in the absence of trade. So the higher the level of trade barriers, greater would be the potential flows (griffin, 2012).Neoclassical models therefore indicate that FDI would be presented essentially due to the difference in the rates of return on capital between countries, i.e., foreign investments are seen as part of a broader international movement of all capital. Importantly FDI on many occasions has almost nothing to do with the movement of capital spent to buy foreign currency in the country a company has to make FDI, this as part of that investment can be made in kind such as patents, machinery and technical assistance-and the rest through local appropriations; further, the Subsequent investments may be reinvested earnings form part of the balance of payments-despite absence of international payments involved (Macmillan, 2012).Moreover, the neoclassical models of capital movements have too restrictive assumptions such as profit maximization, price competition between industries and costs production factors and the existence of production functions and homogeneous marginal productivity of each factor. 2.6.4 Microeconomic determinants of FDIThere are two groups of explanations for the microeconomic determinants of FDI: those that focus on internal characteristics of the firm and those that are fixed in the dynamics of competition. Both groups are not mutually exclusive and there is considerable overlap between them(Swinnen, 2014). Both are originally theories of imperfect competition between large companies that have expanded to include an international dimension. Importantly, both groups come from the pioneering work of Stephen Hymer (Lyle, 2010). John Dunning, another pioneer in the history of modern thought on the causes of FDI, has tried to integrate most of the elements of microeconomic thought into a unified framework called the OLI framework. In doing so, he admits that the approach to be eclectic, i.e., the framework must be sufficiently flexible to allow for the possibility that the determinants of the dispersion international activities of a company may be different from those of other undertakings(Dale, 2013).

2.6.5 Foreign investment and developmentAccording to the neoliberal doctrine, the free flow of international investment represents an engine of development for host economies. However, the experience of the past 25 years shows that foreign investments have serious impacts in terms of human development (Mathirajan, 2009).Inward FDI promotes and leverages processes of Privatization and commoditization of basic goods and services for a decent life for the population. The direct consequence of this is the exclusion of access to those resources by the majority of society and the transformation of universal rights in goods(Page, 2009). India is a case in point: the entrance of transnational capital in the region is linked to the commercial exploitation of goods and services as water and FMCG, experiencing severe rate increases and deficient and inadequate coverage. 2.6.6 Effects of Foreign Direct Investment (FDI)Foreign Direct Investment is leading to rapid globalization of economic activity, so that multinational companies build a wide network of subsidiaries production, whose base is the fragmentation of the different stages of the production process and their location in different countries in order to exploit their respective comparative advantages (Babin, 2012).For the underdeveloped or developing countries FDI, has become one of the key options for accelerated economic development (IMF, 2011). The recent years has emphasized the importance of foreign investment as an engine of development of peripheral countries, it has even been said that if not for foreign investment, these countries will never come to be developed, and this has been adopted by the governments of such countries as the only truth, to the point that they create conducive environments for the establishment of investment in their territory, at the cost of enormous sacrifices, such as high interest rates, reduced wages and other measures, which may substantially diminish the benefits received from foreign investment (Kiely, 2010).2.7 FDI contributes to developing countries by promoting the following:Regarding Capital, FDI brings a wide source of funding. FDI flows are more stable and easier to serve than the commercial debt or portfolio investment. Unlike other sources of capital, transnational corporations generally invest in long term projects (Luo, 2013).

Encourages efficiency and technical change in firms and local institutions, suppliers, customers and competitors; providing assistance, acting as role models, and intensifying competition. Updated and improved technologies as innovations emerge and consumption patterns change. Technologies adapted to local conditions, making use of experience gained in other developing countries(Balasubramanyam, 2013). FDI increases efficiency of technologies that are already in use in the recipient country.The growth of exports in itself offers benefits in terms of technological learning, scale economies, stimulating competitiveness and market intelligence.Multinational companies have worldwide access to individuals with skills and knowledge that can be transferred to their affiliates abroad, this helps in bringing experts or implementing advanced training units. These enhanced capabilities which are customizable with new organizational practices and management techniques, may contribute to the generation of human capital that markets require, as the economic and technological conditions change (Macmillan, 2012). Environment, transnational access to the latest technologies for clean development and environmental management can be used in the economies in which the firm operates, and eventually could encourage healthy environmental management by local companies belonging to the sector receiving FDI (Pearce, 2010).Government policies should weigh the short, medium and long term benefits and costs to bring FDI of different types. The advantages of foreign companies, are basically the implementation of modern production processes or unique, introduction of new management techniques and more skilled labor force. Sooner or later, these technologies result in positive externalities for domestic entrepreneurs (IMF, 2011).

(Swinnen, 2014) and the World Bank have shown that in the sectors in which multinational firms are located, technological and production improvements are seen in domestic firms(Swinnen, 2014). Foreign investment by itself causes the inflow of foreign exchange into the country and reverses in some measure restricting foreign funding. The opposite effect occurs in the case of a drastic departure from investment flows, which generates macroeconomic problems in the receiving region.

It should be stressed that the competitiveness of a nation depends not only in its ability to produce goods more cheaply, but in turn, it must have other elements like quality (in both production systems and the final product), capacity response to consumer demand, speed of delivery, aggressive marketing and establishment of efficient distribution networks. Multinational companies account these aspects, in effect, own more dynamic technologies and have increasingly integrated international production systems and operate in multiple markets simultaneously (Swinnen, 2014).

FDI generally attributes to strong external business because the experiences concerning the export dynamics of companies receiving foreign investment in some cases become superior to that of domestic firms. But this depends on whether or not they operate with imported raw materials and intermediate goods, and how much they do, so in net terms may represent a negative trade balance. 2.8 Features of countries seeking to attract FDIMarket Size: The characteristics of the different countries that receive FDI often are related to the market (size, growth, development, competition, etc), these features have much influence on investment decisions. Other features that become important in the countries concerned are labor costs and human capital, among others (ESCAP, 2014).Year after year, the competition between the governments of different countries to promote foreign direct investment has increased considerably. There are several reasons, but primarily it is due to the fact that FDI encourages the transfer of technology, increase in jobs, reception of foreign exchange and training of manpower (Yue, 2011). To encourage foreign investment, the various governments have implemented a number of policies such as: tax incentives and financial support. Other policies implemented to encourage FDI’s areimproving the quality of government services and the competitiveness of the economy by the creation of infrastructure to attract such investment (austin, 2010).It is believed that a national policy that seeks to encourage FDI must be based on improving the competitiveness of the economy, not only can it attract FDI, but can also create a favorable economic

environment for domestic investment.2.9 Countries that benefit most through FDIForeign direct investment has grown strongly in all countries and regions of the globe. The countries most benefited with this increase were those whose income is low or medium.Between 1990 and 1998, FDI in this type of countries has increased by 700%. Among the countries whose incomes are low or medium, the main recipients of FDI are Latin America and the Caribbean, Southeast Asia and the countries of the Pacific (Moosa, 2014). Moreover, the area that has had a large increase in FDI in recent years is Eastern Europe. In this region FDI grew at an average annual rate of about 50%(Chen, 2011).2.10 SummaryExport handling areas and free trade areas are two main types of amenities given by the governments of the host country structured in areas with many terrestrial benefits of harbors, airports, etc. The government also offers tax cessations and tax incentives to attract more FDI.

Chapter – 3

Research MethodsResearch is the process of identifying the unknown and unexplored with the suitable application of scientific tools based on the demand of the objectives (Anderson, 2012). The systematic analysis of the study, with the aim of reaching the core is the key attribute of research methodology. The research aims at assessing the impact of FDI has on economic growth in the Asian countries, with consideration to India. The outcome of the research will add value to the existing studies on the impact of FDI on the economy of a country. It can show a path to the country in extracting the best from implementation of FDI (Anderson, 2012)

3.1 Research PhilosophyA research philosophy is the systematic process that devises the way of handling the information sourced in order to conduct the research (Saunders, 2009). It is the process of transforming the perceptions and belief of the researcher to an explored knowledge. Research philosophies that are in use consist of the positivism, interpretivism and realism. The perception of positivism is reality is a constant factor, which is enough to absorb rather than exploring (Kumar, 2010). Contrasting to the positivist concept, interpretivism intends to understand the reality with subjective studies. Realism of research philosophy perceives that reality in front is only partial, the reality is studied apparently rather than inquiring the root of reality. The imperfection relies on the other to philosophies are pointed and rectified in the realism. It demands of a research of the reality with detailed, systematic, scientific tools (Marcoulides, 2009). The study entitled “A study on the effect of Foreign Direct Investment on Asian economies: A case study of India.” focus to understand the impact of FDI on the economic growth of Asian countries like China, India, Singapore, etc. The objective of the study is having a broader content, which intends to investigate the benefits of FDI, impact on economic growth and development and the extent of impact with special focus on India. With reference to the scope of the study, it is essential to apply a research philosophy that unearth truer reality rather than producing an apparent report (Kuada, 2012). Realism philosophy is applicable to the study as it demands for the investigation with more focus to underlying reality. The reality is generally influenced by the perspectives and experiences (Kuada, 2012). Realism consist of two predominant types, critical realism and direct realism. Direct realism is the form of own experiences and views of the researcher and critical realism examines the scenario starting from the stimulation, structure, relationship underlined with the reality (Ketchen, 2009). Instituting the critical realism philosophy is essential to match the objective of the study(Kumar, 2010). 3.2 Research purposeDetermining the purpose of research is an essential step to take the research in the right order to reach the core of the issue. Research purpose consist of the exploratory, explanatory and

descriptive (Mathirajan, 2009). Interpreting the impact of FDI on economic growth and development suggest to find the trends of FDI since the regulation change in the country. The objective of the study focus to identify the benefits, economic growth and the extent of influence poured by FDI (Page, 2009). Exploratory studies is not feasible for the study, since it tries to establish the key issues as well as the variables within the study. It is not enough to find the variables alone. It focuses to define the review of literature and explores the existing information with new insights(Marcoulides, 2009). Explanatory research interrelates the data and tries to establish a cause and effect relationship between the variables. The objective of the study is keen on finding the correlation between the economic growth and the impact of FDI (griffin, 2012). This needs extensive research on accurate information and interpretation on events and trends of FDI in India. Description about the data on the FDI trends of India, and Data on economy of India need to be analyzed in order to determine the correlation. Descriptive research purpose is the apt process to be incorporated in the study (Page, 2009). 3.3 Research ApproachDeductive and inductive research approach is considered for the study on the impact of FDI in Indian economic growth. The objective of the study necessitates to identify a suitable means of effective utilization of the research outcome to improve the benefits given by FDI (Anderson, 2012). Establishing the correlation between the economic growth and FDI is essential to determine the impact of FDI (Anderson, 2012). Analyzing the objective of the study clearly entertains the need of an approach that considers the information available and reaches the core of the issue. Inductive method, which is also called as Hill Climbing method. It reaches to the theory by crossing and answering the requirements of observation, hypothesis (Anderson, 2012). Deductive method is the reverse of inductive, which is also well known as waterfall method. In this method, Theories about the FDI, Economic growth are formulated initially, Hypothesis to establish the correlation between FDI and Economic growth is determined, and it will lead to data collection, analysis and confirmation or rejection of the hypothesis (Bougie, 2010). The inductive method fails to confirm or reject the hypothesis, so it is better to incorporate a deductive method. This study intends to use the existing theories to establish the hypothesis rather than creating a new theory.

Source: (Bougie, 2010)3.4 Type of researchThe quality of the research work is determined through the abundance of information poured into the research. The aim of the study is a broader concept, that deal with the economy of a country. Understanding the economy of the country and the impact of FDI is not enough only with qualitative data(Schwab, 2012). Quantitative data are essential in understanding the economy of the country (Bhojanna, 2009). Information like the stability of the currency, exchange rates, market scenario and interest rates can be accumulated by the qualitative sources.Qualitative research encapsulates the theories, data in the form of reports, observations which will support in the analysis. In quantitative research, data are available in the form of quantifiable means (Bhojanna, 2009). Quantitative analysis about the growth and development of the Asian economies is essential to understand the real scenario prevailing in the environment of FDI. In the case of researching the impact of FDI on Asian economies, requires both the form of information and approach. A qualitative and quantitative form of research type is accommodated to study the impact. The study intends to accumulate qualitative insights from economist in order to lead the research quantitatively (Bougie, 2010). Contrasting nature of the qualitative and quantitative research will combinedly eliminate the risk associated with using it alone. For instance, the question type in quantitative is closed ended so it may miss to accommodate the most important facts related to FDI. This risk can be eliminated by using the open ended form from qualitative research (Mathirajan, 2009). 3.5 Research StrategyResearch strategy indicates the overall approach used to devise the research. The research strategies include experiments, survey, case study method. Selection of research strategy must consider the research approach incorporated in the study (Lancaster, 2009). The study “A study on the effect of Foreign Direct Investment on Asian economies: A case study of India.” uses a deductive approach. So it is essential to find an appropriate strategy (Lancaster, 2009). Study demand for data in both the forms, like the primary and the secondary. In order to collect the required data on FDI, interviews

and survey are the best choice. Interviewing the selected source of economist can give the right perspective in identifying the exact strategy of constructing the questionnaire for the survey(Kuada, 2012). The experimental method is not feasible to accommodate, as it involves in altering the variables accordingly. It is not possible for a study intended to analyze the impact of FDI on Economy. Experimental strategies renounce the best results when it is accommodated in behavioral research rather than a social research with reference to economics (Kumar, 2010).Case study method investigates data empirically within the context of the real life scenario. For researching the FDI impacts case studies from different countries can be used, but the context will be different for the Asian community (griffin, 2012). So it is not relevant to invite case study method for the research. Survey method is well fitted with the deductive approach and the scope of the survey is wider, since it can cover more region than the other methods of research strategies (Sekaran, 2010). 3.6 Data CollectionData collection is one of the critical steps in research work. The data collected must have validity, quality and accuracy. Collection of data is categorized into primary data collection and Secondary data collection. Primary data source produces the fresh data about the research problem (Lancaster, 2009). It measures the perceptions, attitudes about the key research area. The scope of the study is stronger, as it involves researching the economy and the impacts of FDI in Indian Economy. The selected samples for primary data collection involves economists from Kerala and individuals knowledgeable in economics and FDI (Marcoulides, 2009). 3.6.1 Primary data collectionPrimary data collection is done through using the observation method, questionnaire method and interview method. Observation method is considered as the least relevant method to the research on “A study on the effect of Foreign Direct Investment on Asian economies: A case study of India.” Observing the trends of the present scenario is not coherent to the analysis of Impact of FDI (Anderson, 2012). Observation methods can lead to deviated results as it is highly controlled by the experimental design of research purpose. For a descriptive research study entangled with deductive research must institute an appropriate method.

Observation method is highly applicable to the psychological research rather than the emerging economic concepts of the society (Kothari, 2011). Survey method is relevant to the deductive approach of research. The study demands to record the data from 50 samples across the nation (Anderson, 2012). Considering all these facts, it is eventually decided questionnaire method and interview method is more plausible to study the benefits of FDI, Impacts of FDI on Asian Economies, correlations, etc. The well structured questionnaire is circulated to the selected samples via the Email. It saves time, cost and increase the amount of coverage to a greater extent (Kuada, 2012). Interview method is incorporated, as the study involves in combined research methods of qualitative and quantitative(Ketchen, 2009). Interviews are classified into structured and unstructured interviews. Structured interviews are conducted using a verbally designed questions based on the objectives of the research (Saunders, 2009). Interviewer post the predetermined questions in a same way to each respondent. Whereas in unstructured interview the respondents are given freedom to speak more than the questions asked. Telephonic interview is the most common method in use. But in the case of the research to study FDI impact on the economy, the respondents are interviewed face to face with a structured interview process (Schwab, 2012). 3.6.2 Questionnaire FormationQuestionnaire formation is the key step in the primary data collection. This stays as the tool to identify the perceptions and the impact of FDI from the societal scenario (Sekaran, 2010). The questionnaire is formed by using the facts, information, theories identified in relation with the objectives and the research questions. The objective of the study is to understand the impact of FDI on Indian economy (Sekaran, 2010). The questionnaire is aimed at the economist and the individuals' knowledge with the economy and FDI impact. Questions can be constructed with the open and closed ended questions. 3.6.3 Secondary Data CollectionSecondary data collection is the process of identifying the existing data on the FDI and the impacts of FDI on Asian economy. It includes the published and the unpublished data across the globe relevant to the objectives of the research(Bhojanna, 2009).

Published data can be collected from the Books, Journals, Magazines, World Economic Forum report, Economic survey report from the Government of India, Publications from Department of Industrial Policy and Promotion, India, Publications from international organizations, Publications from Trade blocks, etc. Unpublished data can be accumulated from the personal experience, personal journals, online forums, and other online tools (Bhojanna, 2009).3.7 Sampling MethodSampling is the process of identifying the suitable representation from the pool of a population. Sampling method is used in research in order to find the factual representation for data collection (Ketchen, 2009). Sampling method is essential in order to find the exact sample of the population from the mass Indian population. The study is concerned with identifying the extent of impact of FDI in economy of Asian countries with special reference to India. Sampling methods are classified into probability sampling and non-probability sampling. Probability sampling holds the feature of giving equal chance of inclusion to the population available (Mathirajan, 2009). Stratified sampling is one of the methods of probability sampling. This method is applicable when the population is not homogeneous. It helps to group the population with certain standards. This method is not applicable to the study, as the population here is having homogeneity and they are representative of the whole population. Systematic sampling method identifies the sample by fixing an indicator at regular intervals (Bougie, 2010). Non probability sampling methods are feasible for the study. The study demands of the knowledge of economics and FDI in India. Snowball sampling is not need invited in the study, as the knowledgeable individuals are abundant (Ketchen, 2009). Quota sampling is purely based on the discretion of the researcher, allocated quotas can be filled by the researcher. The study is having the responsibility to measure the impact of FDI in Indian economy, so it is inevitable to choose the sample with required learning on Economy of India and its growth pattern (Lancaster, 2009).This knowledge is not a available with everyone in India, and needs to be identified carefully. So it is essential to choose the sample based on accessibility and knowledge about the study. The study incorporates two types of survey components, the questionnaire

survey and interview method. The interview is conducted to two economists from Kerala. Judgmental sampling looks more feasible for the interview of economists(Marcoulides, 2009). It is incorporated when the number of people with the required expertise is limited. For the questionnaire survey the samples are selected based on the convenience sampling method. Convenience sampling enables the researcher to choose the sample based on accessibility and knowledge, it is purely the discretion of the researcher(Bhojanna, 2009). 3.7.1 Sample selectionThe sample of the primary data collection is done from the economists and well educated individuals from Kerala, India. They are selected on the basis of expertise and the accessibility (Bougie, 2010). 3.7.2 Sample sizeTotal sample size for the study is 50. It is a composition of economist and well educated Individual with the insight of economics and FDI in India. Among the sample 2 are economists from Kerala (Kothari, 2011). 3.8 Data AnalysisIn order to devise the proper recommendations and conclusion analysis and interpretation of data is the key step. This will organize the data collected through the questionnaire and interview in a quantified manner to make inferences. The collected data are fed in the SPSS (Statistical Package for Social Science) and percentage analysis is applied to find the impact of FDI on Indian economy. In order to find the correlation between the FDI and Economy, correlation tools are applied (Anderson, 2012). 3.9 Research LimitationThe study on the impact of FDI on the growth and development of Indian economy is conducted with 2 specific samples of economist and a total sample of 50. The count of samples is not enough to make conclusions or generalizations(Schwab, 2012). The limited number of samples leads to inadequacy of data. The time span of the study, limited the scope of the research and the cost constraints played a big role in reducing the sample size for the study (Lancaster, 2009). 3.10 Ethical Consideration

Individual ethics and the regulations of the country are well respected. Manipulation of data and recording biased data is strictly avoided in order to increase the quality of the research(Anderson, 2012). Respondents are given with ultimate privacy and confidentiality during the interview and survey.

Chapter – 4

Data presentation and analysis 4.1 IntroductionData analysis chapter which deeply describes about the respondents perspective of the study undertaken. As per the objectives of the study and constraints, the research limited to 50 samples and the sampling techniques are used as convinence sampling techniques. The feedbacks of the respondents are portrays with the help of table, bar chart and interpretations in order to understand more better. 4.2 Data analysis4.1 How do you rate the current Investment policy of India in

attracting foreign direct Investment InflowTable for the current Investment policy of India in attracting foreign direct Investment InflowS.no

Respondent's options Response Percentage (%)

1 Highly satisfied 17 342 Satisfied 16 323 Not satisfied 2 44 Dissatisfied 4 85 Highly dissatisfied 11 22 50 100

Source: (Created by researcher 2014)Chart for the current Investment policy of India in attracting foreign direct Investment Inflow

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 34 % of them are highly satisfied on the current Investment policy of India in attracting foreign direct Investment Inflow, 32 % of them are satisfied on the current Investment policy of India in attracting foreign direct Investment Inflow, 4 % of them are not satisfied on the current Investment policy of India in attracting foreign direct Investment Inflow, 8 % of them are dissatisfied on the current Investment policy of India in attracting foreign direct Investment Inflow and 22 % of them highly dissatisfied on the current Investment policy of India in attracting foreign direct Investment Inflow.54 4.2 How do you rate FDI development and potential investment opportunities in IndiaTable for FDI development and potential investment opportunities in IndiaS.no



Source: (Created by researcher 2014)

Chart for FDI development and potential investment opportunities in India

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 40 % of them are highly satisfied on FDI development and potential investment opportunities in India, 22 % of them are satisfied on How do you rate FDI development and potential investment opportunities in India, 10 % of them are not satisfied on FDI development and potential investment opportunities in India, 16 % of them are dissatisfied on FDI development and potential investment opportunities in India and 12 % of them highly dissatisfied on FDI development and potential investment opportunities in India.54 4.3 How do you Evaluate accessibility of the following factors in India in related with your InvestmentTable for the Evaluation on accessibility of the factors in India in relate with the InvestmentS.no

Respondent's options Response

Percentage (%)

1 Access to long term credit with low interest rate 6 122 Provision of land at competitive lease price 15 303 Technical support 5 104 Land Lease Policy 13 265 Duty free Privileges 11 22 50 100

Source: (Created by researcher 2014)Chart for the Evaluation on accessibility of the factors in India in relate with the Investment

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 12 % of them are opted as access to long term credit with low interest rate, 30 % of them are opted as provision of land at competitive lease price, 10 % of them are opted as technical support, 26 % of them are opted as land lease policy and 22 % of them are opted as duty free privileges on accessibility of the factors

in India in relating with the Investment.54 4.4 How do you rate the effectiveness of FDI in the countryTable for the effectiveness of FDI in the countryS.no



Source: (Created by researcher 2014)Chart for the effectiveness of FDI in the country

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 28 % of them are highly satisfied on the effectiveness of FDI in the country, 36 % of them are satisfied on the effectiveness of FDI in the country, 14 % of them are not satisfied on the effectiveness of FDI in the country, 10 % of them are dissatisfied on the effectiveness of FDI in the country and 12 % of them highly dissatisfied on the effectiveness of FDI in the country.54 4.5 How do you find communications tool promote new product and services in India to external marketTable for finding communications tool to promote new product and services in India to external marketS.no



Source: (Created by researcher 2014)Chart for finding communications tool to promote new product and services in India to external market

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 34 % of them are highly satisfied on finding communications tool to promote new product and services in India to external market, 30 % of them are satisfied on finding communications tool to promote new product and services in India to external market, 8 % of them are not on finding communications tool to promote new product and services in India to external market, 12 % of them are dissatisfied on finding communications tool to promote new product and services in India to external market and 16 % of them highly dissatisfied on finding communications tool to promote new product and services in India to external market.54 4.6 How do you rate the country has attractive tax and duty free compared with other countries in the regionTable for the country has attractive tax and duty free compared with other countries in the regionS.no



Source: (Created by researcher 2014)Chart for the country has attractive tax and duty free compared with other countries in the region Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 10 % of them are highly satisfied on the country has attractive tax and duty free compared with other countries in the region, 12 % of them are satisfied on the country has attractive tax and duty free compared with other countries in the region, 16 % of them are not satisfied on the country has attractive tax and duty free compared with other countries in the region, 32 % of them are

dissatisfied on the country has attractive tax and duty free compared with other countries in the region and 30 % of them highly dissatisfied on the country has attractive tax and duty free compared 4.7 FDI has allowed transfer of technology at a rapid pace across asian economiesTable for FDI has allowed transfer of technology at a rapid pace across asian economiesS.no


1 Strongly agree 2 42 Agree 10 203 Neutral 4 84 Disagree 15 305 Strongly disagree 19 38 50 100

Source: (Created by researcher 2014)Chart for FDI has allowed transfer of technology at a rapid pace across asian economies

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 4 % of them strongly agrees, 20 % of them agreed on FDI has allowed transfer of technology at a rapid pace across asian economies, 8 % of them neutral on the same. 30 % of them disagreed on FDI has allowed transfer of technology at a rapid pace across asian economies and 38 % of them strongly disagreed on FDI has allowed transfer of technology at a rapid pace across asian economies.54 4.8 FDI has multiplied the state of domestic comeptition in the indian market to a great extentTable for FDI has multiplied the state of domestic comeptition in the indian market to a great extentS.no


1 Strongly agree 21 422 Agree 17 34

3 Neutral 4 84 Disagree 6 125 Strongly disagree 2 4 50 100

Source: (Created by researcher 2014)Chart for FDI has multiplied the state of domestic comeptition in the indian market to a great extent

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 42 % of them strongly agrees, 34 % of them agreed on FDI has multiplied the state of domestic comeptition in the indian market to a great extent, 8 % of them neutral on the same. 12 % of them disagreed on FDI has multiplied the state of domestic comeptition in the indian market to a great extent and 4 % of them strongly disagreed on FDI has multiplied the state of domestic comeptition in the indian market to a great extent 54 4.9 Revenues as well as profits that are being reaped by FDI pave way for corporate tax in host countryTable for Revenues as well as profits that are being reaped by FDI pave way for corporate tax in host countryS.no



Source: (Created by researcher 2014)Chart for Revenues as well as profits that are being reaped by FDI pave way for corporate tax in host country

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 10 % of them strongly agrees, 16 % of them agreed on Revenues as well as profits that are being reaped by FDI pave

way for corporate tax in host country, 6 % of them neutral on the same. 28 % of them disagreed on Revenues as well as profits that are being reaped by FDI pave way for corporate tax in host country and 40 % of them strongly disagreed on Revenues as well as profits that are being reaped by FDI pave way for corporate tax in host country.54 4.10 Resource transfer has been one of the most important component of FDI contribution across asian countriesTable for Resource transfer has been one of the most important component of FDI contribution across asian countriesS.no



Source: (Created by researcher 2014)Chart for Resource transfer has been one of the most important component of FDI contribution across asian countries

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 42 % of them strongly agreed, 30 % of them agreed on Resource transfer has been one of the most important component of FDI contribution across asian countries, 12 % of them neutral on the same. 14 % of them disagreed on Resource transfer has been one of the most important component of FDI contribution across asian countries and 2 % of them strongly disagreed on Resource transfer has been one of the most important component of FDI contribution across asian countries. 54 4.11 FDI offer firms and corporates across asian countries to realize economies of scale at easeTable for FDI offer firms and corporates across asian countries to realize economies of scale at ease

S.no



Source: (Created by researcher 2014)Chart for FDI offer firms and corporates across asian countries to realize economies of scale at ease

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 10 % of them strongly agreed, 14 % of them agreed on FDI offer firms and corporates across asian countries to realize economies of scale at ease, 2 % of them neutral on the same. 42 % of them disagreed on FDI offer firms and corporates across asian countries to realize economies of scale at ease and 32 % of them strongly disagreed on FDI offer firms and corporates across asian countries to realize economies of scale at ease. 54 4.12 Asian countires have proper systems and practices to realize the benefits of FDI on economic contextTable for Asian countires have proper systems and practices to realize the benefits of FDI on economic contextS.no



Source: (Created by researcher 2014)Chart for Asian countires have proper systems and practices to realize the benefits of FDI on economic context

Source: (Created by researcher 2014)

InterpretationFrom the above table it is evidently shown that among 50 respondents, 12 % of them strongly agreed, 16 % of them agreed on Asian countires have proper systems and practices to realize the benefits of FDI on economic context, 14 % of them neutral on the same. 30 % of them disagreed on Asian countires have proper systems and practices to realize the benefits of FDI on economic context and 28 % of them strongly disagreed on Asian countires have proper systems and practices to realize the benefits of FDI on economic context. 54 4.13 FDI has a hihgly positive effect on the economic growth of asian countriesTable for FDI has a hihgly positive effect on the economic growth of asian countriesS.no



Source: (Created by researcher 2014)Chart for FDI has a hihgly positive effect on the economic growth of asian countries

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 38 % of them strongly agreed, 28 % of them agreed on FDI has a hihgly positive effect on the economic growth of asian countries, 8 % of them neutral on the same. 14 % of them disagreed on FDI has a hihgly positive effect on the economic growth of asian countries and 12 % of them strongly disagreed on FDI has a hihgly positive effect on the economic growth of asian countries. 54 4.14 There is a strong realtion between economic growth and FDI

across asian countriesTable for There is a strong realtion between economic growth and FDI across asian countriesS.no



Source: (Created by researcher 2014)Chart for There is a strong realtion between economic growth and FDI across asian countries

Source: (Created by researcher 2014)InterpretationFrom the above table it is evidently shown that among 50 respondents, 34 % of them strongly agreed, 40 % of them agreed on There is a strong realtion between economic growth and FDI across asian countries, 8 % of them neutral on the same. 6 % of them disagreed on There is a strong realtion between economic growth and FDI across asian countries and 12 % of them strongly disagreed on There is a strong realtion between economic growth and FDI across asian countries. 54 4.3 ConclusionThe above said data analysis chapter clearly depicts the current analysis on the study undertaken. Based on the findings and analysis the following chapter deeply describes on the results and discussion of the study.

Chapter – 5

Results and Discussion To examine FDI’s overall benefitsAttaining 10% growth is the current aim in front of Indian economy. It has implemented regulations and plans to reach the desired level of growth.it is inevitable to increase the productivity of the nation in order to reach the growth rate of 10%. Because the growth rate is directly proportional to return rates of the country. The data retrieved from UNCTAD (United Nations Conference on Trade and Development) states that India's FDI investments are growing with the mergers and acquisitions rather than Greenfield investments. FDI through Mergers and acquisitions has grown 65.7%(UNCTAD, 2014). Mergers and Acquisitions include investments in the form of retained earnings and infra company loans. The traditional way of M&A involves taping new investment across borders. Removing the barriers for the new Greenfield projects in the country should be done without inertia (Nair, 2013). A relaxation in the policies of FDI investments by the Government of India is a crucial factor to encourage the investors to choose India. Changing the business climate to investor friendly with relaxed regulations, infrastructure

development, and Human capital development will foster more growth (Nair, 2013).FDI is capable of producing the required knowledge to conduct business with international standards. Technology sharing, infrastructure development, research and development are the key areas that will be influenced by the FDI, and increase the competitive advantage of the country. To investigate the effect of FDI in Asian countries economic growth and development with a special focus on India.India missed to develop as an inward FDI manufacturing destination (Narula, 2013). Investments retreated on the manufacturing sector will improve the productivity of the region and influences the allied industries to grow faster. Growth felt in the industrial sector will increase the cash flows of the country and it will reflect in the other sectors like agriculture, boosts employments etc. Growth of the manufacturing sector has greater scope than any other sector(Kiely, 2010). This will reproduce employment's for unskilled labors and improve the quality of life lived by the low end population. The business environment of India stays as a hindrance to the growth of FDI in the country. Business environment surveys by EIU conveys that, India is ranked 78th in supporting environment factors. The UN ESCAP Asia Pacific Trade and Investment report of 2014, underlines that India is not conducive for FDI, the macroeconomic factors impacts the businesses negatively (ESCAP, 2014). Macroeconomic factors that deter the investors includes labor market, lack of infrastructure and logistics like international standard ports, airports and roads, poor supply of power. Legal issues like rigid policies, layers involved in registration of businesses, bureaucracy, tax structure, competition policies and time involved in processing (Jordaan, 2009). Regional disparities are another key issue that stays as an obstacle for the foreign investors to understand India. Indian union consists of 29 states and 7 union territories; it has 23 languages with the script (Nair, 2013). In order to increase the FDI investments in the states, state governments are involved in providing offers like tax rebates, subsidies for capital and power supply, etc.The efforts by the government are not up to the standards of the investors' expectations. States like Bihar, Jharkhand, West Bengal, and Chhattisgarh are filled with mineral resources but the lack of

proper promotion and infrastructure in the area lead to the failure of attracting FDI's. West Bengal, the Manchester of India is attracting only 1.2% of FDI (Chen, 2011). To evaluate the extent to which economic growth of Asian countries can be impacted by FDIMauritius is the key contributor of FDI in India with 36% of investments and topped the chart. Mauritius was considered as a safe route for investments in India (Nair, 2013). Double taxation avoidance treaty enabled more firms to invest in India in the form of a holding company. The purchase of Essar group shares by Vodafone through Vodafone Mauritius depicted the loop holes and ended with legal battles. Government of India had come up with the new strategy to counter such issues (Nair, 2013). They have planned to implement the GAAR (General Anti Avoidance Rules) which will effect from 2016. It will further have an impact on the investments from Mauritius and may lead to the eventual decline of FDI. The decline in the rate of FDI from Mauritius will have a serious impact on the country's balance of payments and currency value in the international forum (Nair, 2013). Now the scenario has changed, the place held by Mauritius is taken over by Singapore last year. The investments of Singapore amounts to US$5.98billion it has surpassed the previous year records. Improvement of Greenfield investments will increase the coverage of FDI and extends growth to the rural areas of India (Chen, 2011). But land acquisitions in the rural area for the inception of Greenfield project are hindered by the local groups of oppositions to FDI. International companies like Arcelor Mittal, POSCO from Korea are abstained by the protesters in entering into the process. Though the government supports the investments, protest from different groups hinder the growth of FDI in rural areas of India (Chen, 2011). The focus given to certain sectors are extraordinary in India, Government of India promotes certain sectors with special packages. But there exists discrimination in providing importance and resources to certain sectors (Narula, 2013). In the year 2000, India allowed FDI in education sector and for three years the sector was not indulged with FDI's. Mauritius is the leading investor in education and followed by it Singapore (Sadka, 2012). It is said, that the sector is not having specific policies and importance, funds from the government part. Government of India should involve in designing policies sector wise and provide sophisticated technology

to promote the sector. The other issue that deter the growth of FDI in education includes commercialization of education, structural gap, regional disparities (Narula, 2013). The agriculture sector is the backbone of the country years back. Industrial sector overtook with huge growth and attractiveness in the investments. 60% of the populations are depending agriculture directly or indirectly (IMF, 2011). In the year 2013, Union of India relaxed policies and encouraged 100% FDI in government route. Reports released by the Department of Industrial Policy and Promotion shows that the FDI in agriculture sector is US$359.68 Million (Nair, 2013). The growth path of FDI in agriculture was initiated with the investments from Escorts Agri Machinery, Clinton Foundation in sourcing cashew fruits, Hindustan Coca-Cola in irrigation. Above investments are made in the year 2014, and many more are expected in the following years. The step taken by the government in allowing 100% FDI in agriculture is criticized as it will affect the food chain if India in future(ESCAP, 2014). There are issues like food security, interest of small farmers, and the welfare of marginal farmers should be cared by the government. To analyze the Asian countries on how to effectively utilize FDI in order to achieve more growth.In order to estimate the effective utilization of FDI, it is necessary to understand with the sector wise policies and regulations initiated by the Government of India. Effective utilization depends on the flexibility of regulations based on the changing market scenario.India's equity market is well developed and facilitated, regulated with the governmental policies. But the attraction for debt market is not at peak. Creation of a proper debt market with proper policy implementation is essential. In the year 2014, Government of India has decided to allow FDI in the debt market (UNO, 2014). The liquidity and depth of the debt market should be improved in order to attract more investments.FDI in Research and development has created 247000 jobs in India. It is contributing in creating employment, but not sharing the technological knowledge with the Indian community. The technological know- how are not transferred as expected by the government (Chen, 2011). Technology is essential to develop a competitive edge which is essential to win the race in the international forum. Patents are issued arises out of the technology sharing phase. Reports indicate that 74 % of the patents are owned

by the investors. There should be broad policies to tap the opportunities enclosed in FDI in research and development. Regulations are essential to play a fair trade on patent issues and knowledge sharing issues (Kiely, 2010). Investors are using the low labor, infrastructure, enjoy subsidies, but the ultimate goal of sharing knowledge is not made by the investors. Strict policies are essential to counter such issues. After industry and agriculture, services are the key sector that contributes 60% of India's GDP. Both the sector is facing challenges in attracting FDI. For the year 2014, FDI has fallen 9%. Due to the fall in this sector, the foreign inflows of the country have declined 10%. Reducing the sector based cap for the service industry, especially in the banking sector is essential (Narula, 2013). The aviation sector of the country is now open for the FDI, it is expected to improve the quality of service, increased serving destination, technology sharing and to have an international appeal. But the case of R&D gave a strong alarm for the regulatory needs with a focus to the future. The same issues are possible in this sector (Jordaan, 2009). This sector is one of the most competitive in India. It often goes for price wars in tickets. There are histories of failed aviation companies. The government of India's idea is good, but it needs more regulation to contend the issues. 100% Greenfield investments are encouraged in the aviation sector in automatic route (ESCAP, 2014).For the year 2014, Government of India has opened FDI in defence sector. It is said 70% of nation's defence needs are facilitated by imports. FDI in defence will improve the technology sharing and increase the indigenous production of weapons. It is very clear that, India is trying to upgrade its policies of FDI. But it is lacking in devising needful strategies and failed in forecasting the future while devising plans. The importances of the certain sectors are not up to needed standards. The focus is mainly on industry and agriculture sector. Other sectors like Education, Logistics, and infrastructure need to increase its coverage and reduce the caps in order to grow.

Chapter - 6

Recommendations and conclusion6.1 IntroductionAim of the study is to determine the impact of FDI on the economic growth of Asian Economies. In this study, India is considered as the key destination for the evaluation and analysis. The study was conducted with 50 samples from the state of kerala. The recommendations are derived with the support of primary data and secondary data. 6.2 Recommendation and Conclusion:71% of the FDI are attracted by the manufacturing sector, 45% of the investors are attracted towards the Indian economy due to the low labor cost, and 50% of the investors are attracted by the potential of domestic market growth of India. Though there are supporting figures are available, it is evident that the growth is concentrated in particular sectors of the country. It can be regulated by instituting focused policies to each sector, promotion boards for each sector and by incepting investor relations program.FDI can contribute to the economy and the society to a larger extent. It involves in the development an growth of the economy by boosting the export competitiveness, technology sharing, employment generation, skills enhancement through foreign investors and develop financial resources. World economic forum ranking of India in Feasible Business environment index is very low than the small economies like South Korea, Thailand and China stay ahead of India. The attraction of FDI is very low in India due to the prevailing lack of infrastructure and facilities. India should concentrate on tapping the mineral resources in the states like Jharkhand and Chhattisgarh which will increase the investments in the mining industry and tends further growth (Jordaan, 2009). FDI in mining is having a limited scope in the country, but the scope has validity since the need for minerals will not end. Limitations like the macroeconomic forces prevailing should be cleared to make the environment favorable to the investors (Jordaan, 2009). The emergence of Indian economy is highly dependent on the FII's

previously, but the changes in the recent years have increased the scope of FDI in the country. 74% of investments in manufacturing sector send the best message to the industry(Nair, 2013). With this rapid growth in India will be one among the three top destinations for manufacturing in 2020. It will further increase the growth of allied industries, boost exports and increase the foreign exchange reserve of India. The economy of the country is highly affected by the FDI flows into the country. However, India should be very careful in dealing with FDI and liberalizing the market to new caps. The market changes in the international scenario can impact the business and then the economy of the nation.

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