Foreign Direct Investment in Brics Thesis

Excerpt from Thesis :

Foreign Direct Investments in Russia

The evolution of FDIs in Russia can be divided into three distinct time periods: 1996-1999, 1999-2002 and 2002-2006. Throughout the first period, foreign direct investments registered a steady growth from 0.65% of the GDP to 1.68%. Throughout the following period, they significantly decreased to 1.00%. Finally, in the third period, direct investments registered increases and by 2006, they would represent nearly 3% in the country's gross domestic product. For the overall period, the trend was an ascendant one.

FDIs and the Indicators of Institutions

VOICE -- with a value of -0.5687, the freedom of the Russian population to choose their own leaders and speak their minds remains limited; nevertheless, it has not managed to discourage foreign investments

POLSTAB -- of a -0.8474, the political stability remains a delicate issue within the Russian Federation, but neither this has discouraged investments

GOVEFF -- the quality of the public services remains low (-0.4038), but in spite of it however, FDIs grew

REGQUAL -- the regulatory quality has also registered negative values, -0.4369, meaning that the government's ability to implement legislation in support of private sector development is still low

RULE -- following the trend set by the previous indicators of institutions, the rule of law also registers negative values (-0.8813), meaning that law has yet to be properly enforced and respected within the country.

CCORR -- control of corruption was also negative (-0.8372), but not even this has managed to discourage FDIs

GOV -- overall, the quality of governance within Russia is negative (-0.6726)

FDII and GGDPPC -- despite the negative values of the previous indicators of institutions, net inflows of FDIs and the annual growth per capita in GDP have both retrieved positive values (1.6605 for FDII and 4.5646 for GGDPPC)

FDIs and the Related Variables

Electric power consumption -- at the beginning of the period considered, the consumption of electronic power suffered reductions, but maintained a sustained trend of growth since 1999; this constitutes for an incentive for investment as it proves the Russian ability to support a technical infrastructure

Electricity production -- the evolution of this index was similar to that of the previous one, with the specification however that the production also suffered a slight decrease in 2002; the growth in electricity production has managed to attract more investments

Population (total) -- the population of Russia has gradually decreased; it is possible that the figure attracted more investors, but studies have shown that the impact of the population onto FDI inflows is insignificant

Internet users (out of 100 individuals) -- without any exception, the number of internet users has increased from one year to the next -- from 0.27 in 1996 to 18 in 2006 -- and this indicator has also managed to attract more foreign direct investments

Paved roads (percentage of total roads) -- the data on the paved roads is not available for all years, yet, they reveal a major increase from 67% in 1998 to 80% in 2006; this also translates in an improved infrastructure, which has sustained investments and attracted foreigners

Exports of goods and services (percentage of GDP) -- the evolution of the exports was a fluctuating one, but their percentage in the gross domestic product increased from 26% in 1999 to 33% in 2006; the lowest was registered in 1997 with 24% and the peak was achieved in 2000, with 44%; generally, the growth in exports has attracted investments

Imports of goods and services (percentage of GDP) -- imports have also fluctuated along the years, but their values in 1996 and 2006 are similar; the lowest value was reached in 2006, and the highest one was in 1999; the relative stability in imports has also contributed to the attraction of more foreign investments

Ores and metals exports (percentage of merchandize exports) -- the export of ores has only registered increases in 1997 and 1998, after which it drastically decreased; the peak value was achieved in 1998, with 16%, and the lowest was reached in 2006, with 7%; this could have constituted for a discouragement of foreign investments

Ores and metals imports (percentage of merchandize imports) -- imports of ores have varied, with the lowest value in 2006 (2%) and the highest in 2000 (6%); decreases in ores imports could be perceived as an incentive to FDIs

4. Foreign Direct Investments in India

The general trend in foreign direct investments in India has been an ascendant one. They commenced at 0.62% in the country's gross domestic product and ended the analyzed period (1996-2006) with 1.90% in the GDP. The lowest point was reached in 1999, when FDIs only accounted for 0.48% in the national product. Another period of decline was met throughout the time frame 2003-2005, but the analyzed period ended in the highest values.

FDIs and the Indicators of Institutions

VOICE -- voice and accountability averaged a positive 0.3236, meaning that the freedom of the population to elect the government and to speak its minds increased and this contributed to the attraction of more investors

POLSTAB -- political stability was on the other hand negative (-0.9311), but it did not discourage investors

GOVEFF -- the efficiency of the government was also reduced (-0.1089) but neither did this alienate the foreigners

REGQUAL -- like the previous two indicators, the regulatory quality has also registered a negative average value across 1996-2006 (-0.2326) but in spite of this, investments still increased

RULE -- the power of the legislation remains increased (0.1075), meaning that the population and the economic agents obey the law -- this constitutes for a great advantage in favor of foreign direct investments

CCORR -- despite the growth in rule of law, the battle against corruption remains tight and the control is fairly reduced (-0.3332); FDI inflows were however not discouraged by it

GOV -- overall, the efficiency of the governance process remains low in India

FDII and GGDPPC -- despite the fact that most of the indicators of institutions presented above retrieved negative values for the period considered, the net inflows of FDI and the annual growth in income per capita have retrieved positive values (0.9293 for FDII and 5.3941 for GGDPPC); this means that the country is able to attract investors through means other than the quality of governance

FDIs and the Related Variables

Electric power consumption -- increased throughout the entire period, at lower rates throughout the first half and with larger growth rates throughout the second half; it means that FDIs were stimulated through the existence of a technological infrastructure

Electricity production -- increased throughout all the years, without any exception; this also managed to attract more investors, who were encouraged by the country's endeavors towards energy stability and self-sufficiency

Population (total) -- the figures following 2003 are not available, but a look at the population statistics in the previous years shows annual increases -- the total population in 1996's India was of 948 million, to increase to 1,064 million by 2003; India is internationally recognized for its abundance of human resource and it is possible that the increase in population stimulated investments; however, it is also possible that this index did not generate any impact on FDIs

Internet users (out of 100 individuals) -- the number of internet users has also increased, but at a slower rate than those in Brazil and Russia; in 1999, out of 100 Indians, 0.04 were using the internet, by 2006, there were nearly 7 individuals using the world wide web; this must have also positively impacted foreign direct investments as they sent a message that a technical infrastructure could be constructed

Paved roads (percentage of total roads) -- the situation of the paved roads is more dramatic in the meaning that it suffered demises -- from the 54% paved roads India had in 1996, by 2002, the numbers were only indicating 47% (the data following 2003 is not available); generally, this would translate into reduced interest from foreign investors

Exports of goods and services (percentage of GDP) -- the exports of products and services have generally increased, with the exception of 2001, when they decreased; throughout the entire period, exports have more than doubled -- they accounted for 10% in the GDP in 1996 and 22% by 2006; overall, the growth in exports implies production sustainability, which attracted more inflows of foreign investments

Imports of goods and services (percentage of GDP) -- imports have generally increased, again with the exception of 2001; their total percentage in the GDP has more than doubled (increased from 11% to 25%); in terms of the FDIs, the import growth could imply a…

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