The healthy development of any economy relies on the amount of capital investment that it receives. The increase in capital requires savings to match investments. The most important problems facing developing countries would be to find ways to increase savings to the level of desired investments Because of the economic upheavals in Asia and the rest of the world, countries that are now undergoing industrialization and are in the process of development have been advised specifically to depend strongly on “foreign direct investment” (FDI) to increase national savings with the influx of funds and by promoting trade and industry.
Even proponents of impulsive and wide-ranging financial liberalization are inclined to favor a tilt towards FDI). FDI is thought to be less vulnerable to the crisis because foreign direct investors characteristically have long term perceptions when considering investment in another country. Besides sharing the risks associated with establishing new ventures, it is popularly believed that FDI provides a stronger incentive to economic growth in host countries than many other forms of capital investment. The fundamental line of reasoning is that FDI is much more than just finance. It also supplements it financial investments with the latest available modern technology and management expertise.
Despite these well-known facts, specialists in economics have very little knowledge about the economic properties of FDI. There are very few acknowledged or clear perceptions which policy makers could indisputably depend upon. The significance of previous conclusions regarding the causes of FDI is contentious. The comparative significance of long-established factors may have diminished in the progression of fiscal international integration arising from the exchange of views, products and different aspect of culture (globalization). The monetary results of FDI cannot be easily explained or generalized. Experiential studies regarding the escalation effect of FDI have shown controversial outcomes. The ensuing measures are initiated by depicting the current tendencies regarding the progression and division of FDI.
The argument of decisive factors in developing and recently industrialized concentrates on influences that can be applied by host governments. These principles have proved to be very useful for planning and future predictions for formulating development plans for many under-developed countries. The formula has proved that taking into account the capital productivity, the relationship between saving and investment for national income can be assessed for any predetermined growth in investment. Hypothetically if the country wants to grow at 5 percent per annum, with the capital productivity being at 3, it must save and invest 15 percent of its national income. If it does not save the required amount, growth will be affected and will slow down.
