The Analysis Of The Development And Trend Of FDI Policies In Developing Countries

The paper includes four sections:The first section: the outline of FDI policies of host countries. Both investors and host countries take part in the transnational investment activities, but those existing theories about transnational investment are supply-demanding theories, leaving out the analysis of host countries' behavior. The two-gap theory provides theoretical explanations for developing countries to utilize foreign investment in order to overcome the restriction caused by domestic investment shortage in the path of achieving economic development. Since 1980s, most developing countries have adjusted their restrain attitude towards MNCs and adopted various incentive policies to promote inflow FDI. As a result, FDI became the dominant segment of foreign investment in many developing countries. The total amount of FDI inflows in developing countries increases steadily in the last decade and accounted for 27.86% of total amount of global FDI inflows in 2001.Both China and India are large developing countries, and the development of their FDI policies are representative . Analyzing their FDI policies will help us to explore the trend of FDI policies in developing countries and examine the prospects of FDI inflows in developing countries in the near future. The second section : the development of China's FDI policies and the present status of utilization of FDI in China. China's FDI policies are important parts of the basic state policy of opening-up. Since 1979, the central government has made series laws and regulations about utilizing foreign investment and kept the continuity and stability of these laws and regulations. â… . the foreign equity restriction are gradually relaxed in the three kinds of foreign-invested enterprises (or ventures) ; â…¡.tax incentives are given to foreign investors who make investment in high-tech industries and export-oriented projects; â…¢.Preferential policies were primarily given to the foreign investors in eastern coastal areas primarily and then appropriately directed to the central and western areas of the country in recently years to change the unbalanced situation of regional distribution of FDI inflows in China; â…£. China adopted an gradual industrial opening-up principle in directing inflow FDI to manufacturing industries (labor-incentive industries and resource-intensive industries) and then to service step by step.The annual growth rate of FDI inflows surpasses the annual growth rate of GDP in the corresponding period in the last two decades in China. In early 1980s, the inflow FDI in cooperative businesses played the leading role , and since the late 1980s, Sino-foreign joint ventures began to take the lead , but in recently years exclusively foreign-owned enterprises increased rapidly and become the main entry pattern of FDI inflows in China. Eastern coastal region absorbs most of the inflow FDI in China, but MNCs began to increase investment in the central and western areas in recent years.The inflow FDI plays an active role in accelerating economic growth and perfecting the market mechanism in China in the following aspects: creating more jobs, enlarging total import and export volumes , optimizing export structures, upgrading industrial structures and promoting economic growth. Since the purpose of absorbing FDI has changed from utilizing FDI to make up domestic investment to helping to upgrade industrial structures , policies towards FDI in China should be adjusted accordingly.The third section : the development of FDI policies in India and the Indian performance in utilization of FDI . For the first four decades after achieving independence , the economic policies of Indian government were characterized by planning, control and regulation. There were foreign shareholding in many companies, but the emphases of utilizing foreign investment were placed on foreign aids instead of FDI inflows. The Indian government implemented stringent policies towards FDI .During the early 1980s, following a serious balance of payment crisis and a large loan fro...