Foreign Direct Investment in China and India: the Economic Environment

Abstract

The increasing globalization of the world economy has stimulated the appetite of multinational enterprises for investing abroad, while at the same time it has forced host countries to create a more favorable environment for foreign direct investment (FDI). Net FDI in the developing countries was almost three times as large in 1991 as it was during all of the 1980s, while it increased by about 30 per cent in 1992 and 40 per cent in 1993. 1 FDI rose from 4 per cent of total net resource flows to developing countries in 1970 to 15 per cent in 1986 and 27 per cent in 1992. 2 World gross FDI inflows reached $315 billion in 1995, an increase of 40 per cent over the previous year. Inflows of FDI in the developing countries amounted to $100 billion in 1995, an increase of 15 per cent over the 1994 total. Of global FDI inflows in 1995, the industrialized countries received 65 per cent, the developing countries 32 per cent, and Central and Eastern Europe 4 per cent. FDI flows have a high degree of country concentration. About two-thirds of the outflow in 1995 came from five countries (the US, Germany, the UK, Japan, and France). The ten largest recipients of FDI inflows in 1995 also received about two-thirds of the total. China, the developing country with the largest inflow, accounted for 38 per cent of the total inflow to developing countries in 1995, while South, East, and South-east Asia accounted for 65 per cent. Only the US received a larger inflow of FDI than China in 1995. 3