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Foreign Direct Investment (FDI) and Financial Integration
By Abhijit Bhattacharya

First Published : 2021
ISBN : 9788177085259
Pages : 180
Binding : Hardbound
Size : 5 x 9
Price : US$ 59
ABOUT THE BOOK

Foreign investment, an important source of non-debt finance, is a subject of topical interest. Countries of the world, particularly developing economies, are vying with each other to attract foreign capital to boost their domestic rates of investment and also to acquire new technology and managerial skills. Intense competition is taking place among the fund-starved less developed countries to lure foreign investors by offering repatriation facilities, tax concessions and other incentives.

The beginning of the 21st century has already marked a tremendous growth of international investments, trade and financial transactions along with the integration and openness of international markets.

Investment in a country by individuals and organisations from other countries may take the form of direct investment (creation of productive facilities) or portfolio investment (acquisition of securities). Foreign direct investment (FDI) is the outcome of the mutual interests of multinational firms and host countries. The essence of FDI is the transmission to the host country of a package of capital, managerial skills and technical knowledge. FDI is generally a form of long-term international capital movement, made for the purpose of productive activity and accompanied by the intention of managerial control or participation in the management of a foreign firm.

FDI is usually contrasted with portfolio investment which does not seek management control, but is motivated by profit. Portfolio investment occurs when individual investors invest, mostly through stockbrokers, in stocks of foreign companies in foreign land in search of profit opportunities.

FDI is widely considered superior over other forms of capital inflows for achieving sustainable development. Developing countries are strongly advised to rely primarily on FDI, in order to supplement national savings by capital inflows and promote economic development.

FDI is not an unmixed blessing. When foreign investment is competitive with home investment, profits of domestic industries fall, leading to shrinkage of domestic savings. Foreign firms stimulate inappropriate consumption patterns through excessive advertising and monopolistic/oligopolistic market power. Similarly, foreign firms are able to extract sizeable economic and political concessions from competing governments of developing countries. Consequently, private profits of these companies may exceed social benefits.

Thus, governments in developing countries have to be very careful while deciding the magnitude, pattern and conditions of private foreign investment. The key question is how host countries can minimise possible negative effects and maximise positive effects of FDI through appropriate policies.

This book attempts to explain and statistically examine the various dimensions of FDI with reference to India. It also includes chapters on portfolio investment, financial integration, international investment position (IIP) of South Asian countries and international financial integration of high income European Union (EU) countries.


CONTENTS
     
1. Foreign Direct Investment (FDI): Theoretical Settings
1.1 Globalization and Cross-border Investments
1.2 FDI and Portfolio Investment
1.3 Superiority of FDI over Other Forms of Capital Inflows
1.4 Resource-seeking, Market-seeking and Efficiency-seeking FDI
1.5 Crowding-in and Crowding-out Impacts of FDI
1.6 Advantages of FDI for the Host Country
1.7 Disadvantages of FDI for the Host Country
1.8 World Bank Determinants of FDI

2. Domestic, Regional and International Financial Integration
2.1 Integration of Financial Markets
2.2 Domestic Financial Integration
2.3 Regional Financial Integration (Asia)
2.4 International Financial Integration

3. International Investment Position (IIP) of India
3.1 What is International Investment Position (IIP)?
3.2 Definitions of Various Components
3.3 Literature Review
3.4 Why is Inflow of Foreign Assets Needed?
3.5 Variables and Analysis

4. International Financial Integration (IFI) of India
4.1 Types of International Flows of Capital
4.2 Financial Integration
4.3 Literature Review
4.4 Different Measures of IFI
4.5 Descriptions of the Components of IFI
4.6 International Financial Integration of India

5. Financial Leveraging of India
5.1 Indications of Financial Leveraging of India

6. General Conditions, Legislations, Rules and Regulations Governing FDI
6.1 Economic Reforms and FDI
6.2 Regulatory Framework
6.3 Entities Eligible to Invest in India
6.4 Entities into Which FDI Can Be Made (i.e. Eligible Investee Entities)
6.5 Entry Routes for Investment
6.6 Caps on Investments
6.7 Important Rules and Regulations Governing Foreign Investments in India
6.8 Post-approval Procedures
6.9 Entry Options for Foreign Investors

7. Sector-specific Caps and Conditions on FDI for Permitted Sectors
7.1 Prohibited Sectors
7.2 Permitted Sectors
7.3 FDI in Agriculture and Allied Sectors
7.4 FDI in Mining, Petroleum and Natural Gas
7.5 FDI in Defence Industry
7.6 FDI in Services Sector
7.7 FDI in Financial Services
7.8 FDI in Pharmaceuticals

8. Favourable Factors for FDI in India
8.1 Why FDI is Important for India?
8.2 World Investment Report, 2020 and India
8.3 Large and Expanding Size of the Market
8.4 US and Western World’s Disenchantment with China
8.5 Ease of Doing Business
8.6 Digital Revolution
8.7 Well-managed Public Finances
8.8 Robust and Resilient Financial System
8.9 Strong and Diversified Industrial, Infrastructural and Logistics Base
8.10 Rising Innovations Ranking
8.11 Start-up Hub
8.12 Realistic Exchange Rate and Sufficient Foreign Exchange Reserves
8.13 Political Stability and Cordial International Relations

9. Foreign Portfolio Investment
9.1 Advantages of Portfolio Investment Inflows
9.2 Disadvantages of Portfolio Investment Inflows
9.3 Liberalisation of Portfolio Investment Flows into India

10. International Investment Position (IIP) and International Financial Integration (IFI) of South Asian Countries
10.1 Introduction
10.2 Review of Literature
10.3 Growth of Assets and Liabilities: Some Stylized Facts
10.4 Conclusion

11. Determinants of International Financial Integration (IFI) of 12 European Union (EU) Countries
11.1 Introduction
11.2 Review of Literature
11.3 Concepts, Measures and Trends of International Financial Integration
11.4 Summary and Conclusion

Bibliography
Index

ABOUT THE AUTHOR
     

Dr. Abhijit Bhattacharya is currently Assistant Professor of Economics, Pingla Thana Mahavidyalaya, Paschim Medinipur, West Bengal. He holds M.A., M.Phil., and Ph.D. degrees in Economics. He successfully completed a research project on Global Financial Crisis funded by the University Grants Commission (UGC), New Delhi. He has contributed articles in journals and chapters in various books edited by eminent scholars. He has attended and presented papers at international and national level conferences and seminars. One of his collaborative research papers on FDI was adjudged the best at the International Accounting, Finance, Economics and Banking Conference held at Flame University, Pune during December 17-18, 2017.


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