Specifications of today's processes of the globalization in the world economy have a significant impact on the economic growth of the developing countries. Increased globalization is manifested in the fact that foreign capital has become an important component of any economy. International capital flows are carried out at different levels of the economy, as well as different forms of capital. These forms are international loans, foreign direct investment and foreign portfolio investment. However, it appears that foreign direct investment is the best form of raising capital. The purpose of this article is to demonstrate the role of a foreign direct investment (FDI) in the processes of economic growth and socio-economic development. Capital in the form of foreign direct investment is considered the safest and most useful form of investment into the country from abroad (Cantwell, & Mudambi, 2000). Primarily, this is due to the stability in the long term, as well as the low sensitivity of this form of investments to short-term changes in economic conditions in the financial markets. In the economic literature, there are many definitions of direct foreign investment.
However, despite the use of a number of definitions, it should be noted that the most similar way to describe the foreign direct investment is to determine it as an international movement of capital with a long-term nature. It is associated with the movement of funds, expertise and technology, as well as everything is connected with the influence on the activity of companies and their management. The most frequently cited, and the following definitions apply: In accordance with the wording of the International Monetary Fund (IMF), foreign direct investments are the type of funding to obtain a long-term impact on the management of a national company and influence its business (Cantwell, & Mudambi, 2000). Foreign direct investments are defined as projects (investments), which lead to long-term effects of a resident of one country to a company in another country. The result is a long-term relationship between the investor and the enterprise recipient of foreign direct investment, manifested in the effect on the operations and management of the company (Cantwell, & Mudambi, 2000). The size of the investment required in order to be called foreign direct investment should not be below the threshold of 10% of the share capital of the company.
The equity investments carried out by a foreign investor in another country with the intention of obtaining a direct impact on the company's businesses are conducted through the form of financial resources, human capital, technology, expertise, etc. It should be emphasized once again that foreign direct investments are made in order to implement a long-term control over the enterprise. Control and long-term impact on the company is distinguished by foreign direct investment portfolio. Portfolio investment applies only to the purchase of shares of the company, rather than to its management. It is worth noting that, in economic terms, FDI, domestic investment is similar, differing origins (Dunning, 2009). The essence of foreign direct investment is in their use to replenish the lack of capital in the internal market. The ultimate goal is to provide resources and skills that will enable the company to maintain and strengthen its market position by optimizing and improving the organizational structure. In addition, these investments contribute to the technological modernization of the economy and the dissemination of new management methods. It should also be noted that because of the inflow of foreign investment, unemployment reduced because of stimulation of demand in the labor market. Companies operating in the international arena, before taking a decision on the placement of funds abroad take into account many factors (Monaghan, Gunnigle & Lavelle, 2014). These conditions are often referred to the investment climate of the host country. It is similar in importance to the natural resources of the region, to influence the choice of the region for foreign direct investment.
It should be noted that many countries are trying to attract foreign investors, as their own savings are not sufficient to achieve their development goals. They believe that foreign investors will have a significant additional capital for the development of components such as managerial and organizational capability, technology and access to international markets. Foreign direct investment can take many different forms of participation (full or partial) in the company, and can be implemented in the form of a new company. The impact on foreign direct investment balance of payments can be traced back through the list of all the business transactions carried out with the outside world the host country. It is possible to distinguish the following steps: the financial account (portfolio investment, direct investment and other investments, such as foreign loans, cash in current accounts) and capital (capital transfers from the value of investment assets received free, donations for the purchase of fixed assets and the disposal of non-produced assets unfunded including purchase and sale of copyrights, patents). In the management of inflows of foreign direct investment an important role in the formation of the exchange rate policy in the host country plays, in particular, the interest rate policy.
This is due to the fact that, on the one hand, raising interest rates contributes significantly to foreign investment, and on the other hand there is a negative impact on domestic investment processes. Foreign direct investment, can have a positive impact on improving the balance of payments (due to foreign capital inflows, the external balance of the economy, improving terms of trade, import substitution). Note, however, that these investments may also have a negative impact on the balance sheet because of the elimination of domestic investment, the increase in imports and the outflow of profits generated in the investor's country. The modern global economy, as mentioned above, is characterized by the intensification of the processes of globalization (Monaghan, Gunnigle & Lavelle, 2014). The most important factors determining the process, is the country's participation in international capital flows and participates in the development of new technologies. It should be noted that there is a close relationship between these elements, since there is no possibility of the development of technologies without capital inflows. Technology transfer in foreign direct investment is complex. The main components of this package include: human capital, physical capital and intangible assets, as well as various forms of cooperation.
The most important consequences of the impact of FDI on technological progress include a new model of management and organization and an impact on employment. Also skills development and education, new technologies used by foreign companies, modern production (production of high-tech products, improve product quality and a high volume of sales) and the use of environmentally friendly technologies and improving environmental safety solutions.
Foreign direct investment, as already indicated, is not only financial capital flows and transfer of knowledge and management skills from developed countries to developing countries. The concrete result is the reduction or even total elimination of the digital divide (Monaghan, Gunnigle & Lavelle, 2014). Today, the main source of competitiveness is the technology, skills, and improved responsiveness to innovation. With the influx of new technologies, innovation and business processes increase the efficiency of companies. The consequence of this may be to improve the economic situation. It should be emphasized that the benefits of foreign direct investment depend largely on their technological resources. The patented technology can be adapted to local conditions. It is worth noting that the development of the research activities of companies (corporations) can have a positive impact on the international development research activities of foreign investors in the host country. In general, it is possible to state that foreign direct investment has played a significant role in improving the technological progress in the country. The impact of foreign companies in the form of foreign direct investment in the labor market in the country of direct investment depends on many factors. The most important of them are the foreign direct investment, in such forms as mergers and acquisitions related to the change of the owner, the consequence of which is to maintain the current level of employment, or even job cuts, i.e. rationalization of employment. With the new branches in the capital of the host country, which is directly connected with the creation of new jobs and actions (strategy) of foreign companies can be carried out in the transfer of production abroad.
Replacement of domestic production can reduce employment. However, if foreign production is complementary to domestic production - it contributes to the removal of financial, technological and institutional "bottlenecks". In this case, there is a beneficial effect on the operation of enterprises.
In analyzing the impact of FDI on the labor market of the host country must take into account the quantitative aspect (the change in employment), the quality aspect (impact on productivity, retraining) and aspect of localization (Dunning, 2009). Foreign direct investments have a positive impact on employment, particularly in countries with high unemployment. The influx of foreign investment leads to higher productivity, and often an increase in wages. Quite often these two effects occur together (the creation of new jobs or the replacement of the existing, higher-paying option). In many cases, the payment is in foreign enterprises is higher than the national companies. Higher wages stimulate the growth of labor productivity. The increase in wages in foreign companies has a positive effect on the growth of wages in the economy as a whole. The analysis in the work, confirms that foreign direct investment contribute to sustainable economic growth and socio-economic development (Dunning, 2009). Foreign direct investment provides the modernization of production facilities, improving the quality of growth and attract new investment. The impact of foreign investment on the host economy is ambiguous and multifaceted. It should be noted that the benefits for the host country depend on many factors, including social, economic and political situation in the country. Foreign companies can significantly affect the performance of domestic companies. This is due to the fact that the national players are forced to take appropriate steps to catch up with foreign competitors. The result is technological progress improves level of knowledge and improvement of administrative procedures in all enterprises, including national companies. Foreign direct investment also contribute to employment growth in the domestic market.
Works Cited
Cantwell, J. & Mudambi, R. (2000). ‘The location of MNE R&D activity: The role of investment incentives’, Management International Review, 40(1): 127-148.
Dunning, J.H. (2009). ‘Location and the multinational enterprise: A neglected factor?’, Journal of International Business, 40(1): 5-19.
Monaghan, S., Gunnigle, P. & Lavelle, J. (2014). ‘Courting the Multinational: Subnational institutional capacity and foreign market insidership’, Journal of International Business, 45(2): 131-150.
McKellar, D. (2013). The Grand Seduction [film], Canada: Max Film Productions
