Rise of Fdi in Asia

Topics: Economics, Macroeconomics, Investment Pages: 8 (2572 words) Published: April 4, 2013
The past 30 decades witnessed a rapidly economic growth in Asian countries. Some countries have even made miracles in their economies, including Korea, Hong Kong and China. Most of the ‘miracle-made countries’ have conducted open-up policies to attract FDI, which in turn plays a crucial role in improving the nations’ total GDP and stimulating economic growth. While unfortunately, the 2000s global recession which was caused by subprime crisis, has caused and is going to continue cause a fall in FDI in Asian countries. In the following paragraphs, the role of FDI in the rise of Asia and the impact of global recession on future FDI in these Asian countries would be described in detail. And several examples such as Korea, Vietnam and China would be made to support the description.

1. Role of FDI in the rise of Asia:
The past two decades have witness a significant economic growth in many Asian countries with a development of their foreign investment. Beginning from 1980s, foreign direct investment flows rapidly with increasing number of multinational enterprises. There has been a significant sign that developing countries, especially the countries located in the Asia-pacific regions have shown absorption of FDI inflows. In the rise of Asian economies, foreign direct investment played an important role in increasing the GDP of a variety of Asian countries. Thus FDI has become a principal source of external capital for Asian nations. (David, Jung-Soo, 2003) And based on studies and researches conducted, we can conclude that FDI has a positive relationship with the host country’s economic growth. (Dharmendra, Saif and Kamal, 2009) Generally the most enduring effect of FDI to the host country is technology transfer. (Stephen, 1999) Besides, some other benefits include capital inflows, employment level increase, improvement of integration with the global market and total GDP increase. The role of FDI in the rise of several Asian countries including Vietnam, China, Singapore and South Korea would be explained in detail in the following paragraphs.

1.1 FDI in the rise of Vietnam:
Vietnam is one of the countries the economies of which are influenced heavily by foreign investment. FDI is one part of Doi Moi reform in Vietnam which was conducted in the mid 1980s. Before the reform, FDI in Vietnam was restrictly forhibited, the number of foreign direct enterprises was zero. Vietnam’s industrial market was dominated by stated owned enterprises, which were characterized as low-efficient and operated unprofitably because they come under an umbrella of protection that cushion from competition and renovation. After the reform, the conditions of FDI operation were effectively relaxed, and FDI slowly started flowing into Vietnam. The Law of Foreign Investment of 1987 allowed FDI to take place in the forms of Joint Venture and wholly foreign owned enterprises. (Henrik, 2002) As a result of the FDI reform, FDI companies contributed 13.1% to the GDP, 35% of the industrial output, 23% to the export, 25% of total state budget revenues. Indirectly, FDI has provided some more employment through sub-contractors or suppliers. Additionally, the significant contribution of FDI to economic growth in Vietnam has been realized through GDP growth, international trade and employment. Futuremore, the foreign direct investment has helped Vietnam to develop totally new industries for this country, such as oil, gas exploration, car and motor bicycles industries by the way of attracting foreign capital and transferring technology. Besides, the existing industries such as foods, beverage, garment and textile have also been upgraded because of the new technologies. FDI has also helped to modernize management, and hence improve the labor market. In order to adapt the cultural environment of foreign companies, over 300.000 workers have been trained or re-trained, 25.000 technicians and 6.000 managers have been trained, partially abroad. In...
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