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Foreign Direct Investment ( FDI) a Case Study in Cambodia- Abstract

Foreign Direct Investment ( FDI) a Case Study in Cambodia- Abstract

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Published by: Hong Kheng on Oct 07, 2013
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Foreign Direct Investment (FDI):A case study in Cambodia
Dr. Kao Kveng Hong*Scholar at Angkor Khemara UniversityDate : 2014
ABSTRACT
Foreign direct investment is investment of foreign assets into domestic structures, equipment,and organizations. It has positive
effects on a host country’s development effort. As Cambodia is
one of the poorest countries in the world, FDI in the country is very much necessary for itseconomic development. The study on FDI has been undertaken in Cambodia to seek answers tothe following questions:i.
 
What is the concept and type of FDI?ii.
 
What are the provisions to attract FDI in different countries?iii.
 
What are the contributions of FDI for economic development in differentcountries of the world?iv.
 
What are the provisions of Royal Government of Cambodia to attract FDI?v.
 
What are the growths of number of projects, total project cost, total fixed assetsand equities of FDI in Cambodia?vi.
 
What are the percentage shares of FDI in different sectors like agriculture,industry and services?vii.
 
What are the FDIs of different countries in Cambodia?viii.
 
How is the provincial distribution of FDI in Cambodia?ix.
 
What is the impact of active foreign investment projects on GDP in Cambodia?x.
 
What are the opinions of foreign direct investors on the available opportunities, problems and prospects of FDI in Cambodia?The objectives set for the study are as follows:i.
 
To examine the role of FDI in contributing economic growth in differentcountries;ii.
 
To examine the existing FDI provisions of Royal Government of Cambodia;iii.
 
To assess the growth of FDI and its different dimensions in the country over the period of time;
 
iv.
 
To examine the effects of active foreign investment projects of four major sectors, i.e., agriculture and agro-industry, industry and manufacture, tourism, andinfrastructure and others, on GDP;v.
 
To examine the opportunities available to foreign direct investors, problems faced by them and prospects of FDI in Cambodia; andvi.
 
To provide necessary recommendations to attract more FDI in Cambodia.In the study, an attempt has been made to test the following hypotheses:Ho1: There is no positive growth of foreign investment flows in the country.Ho2: There is no significant impact of total project costs of active foreigninvestment projects in agriculture and agro-industry sector on GDP inCambodia.Ho3: There is no significant impact of total project costs of active foreigninvestment projects in industry and manufacture sector on GDP inCambodia.Ho4: There is no significant impact of total project costs of active foreigninvestment project in tourism sector on GDP in Cambodia.Ho5: There is on significant impact of total project costs of active foreigninvestment projects in infrastructure and other sectors on GDP inCambodia.Both descriptive and quantitative approaches have been used to analyze the data.Secondary data have been collected from Council for the Development of Cambodia, Ministry of Commerce, Ministry of Economy and Finance, and Ministry of Planning of Government of Cambodia, International Monetary Fund and Internet. Primary data have been collected from 83foreign investor doing business in garment industry, food and beverage, real estate, electricity,construction and others. There 83 foreign investors have been selected on the basis of  proportional stratified random sampling method. The study has used two econometric models toassess the average annual growth rates of FDI and its different dimensions over the period of time and the impact of total project costs of active foreign investment projects of four major sectors, i.e., agriculture and agro-industry, industry and manufacture, tourism, and infrastructureand other sectors, on Gross Domestic Product (GDP) in Cambodia.First, analysis of the reviews of literatures shows that FDI can promote economic growthin the host country a variety of channels like technology transfer, spillovers, source of externalfinance and improvement in technical and allocative efficiency in the host country. It helps inincreasing capital formation and economic growth by introducing new technologies such as new production techniques, managerial skills, ideas, and variety of new capital goods. The economies
 
with well-developed financial markets are able to benefit more from FDI in promoting their economic growth. Foreign investment gives advantage in terms of export market access arisingfrom economies of scale in marketing of foreign firms or from the ability to gain market access
abroad. It can also aid in bridging a host country’s foreign
exchange gap. Therefore, countrieslike Vietnam, India, Pakistan, China, Thailand, South Korea, Malaysia, South Africa,Mozambique, Singapore, Indonesia, Bangladesh and Cambodia have adopted proactive policiesto attract FDI in order to develop their economies.Secondly, the study has dealt with the details of the research methodology including typeand sources of data, sample size and sampling, procedure of collecting data, statistical tools andcoverage of the study.Thirdly, policies of Royal Government of Cambodia to attract FDI have been analyzed.In the country, both foreign and domestic investors enjoy the same rights of national treatment.All foreign investors can invest in all sectors of the Cambodia economy. Although, theownership of land is reserved to natural and legal Cambodia persons, but natural and legalforeign persons have the possibility to use land through lease contracts for a period of up to 99years. Further, investors can set up 100 per cent foreign-owned investment projects and employskilled workers from overseas, in cases where these workers cannot be found in the domesticlabour force. Investors in the special economic zones get the benefits like tax exemption on theimport of materials, equipment and construction materials, tax on profit exemption for amaximum period of nine years, and incentive of zero per cent Value Added Tax. Import dutyrates of zero per cent, seven per cent, 15 per cent, 35 per cent and 50 per cent are levied for goods as decided by the government, primary products and raw materials, machinery andequipment, finished products and government protected goods, and luxurious goods respectively.Fourthly, the overall growth of total project cost of all types of investment flows inCambodia during 1994-2004 was -18.38 per cent per annum with -7.18 per cent growth rate for foreign investment flows, 14.18 per cent for domestic investment flows and -30.02 per cent for  joint countries investment flows. Further, the study found that the average annual growth rates of total fixed assets and equity of FDI during 1994-2004 were -6.31 per cent and -17.13 per centrespectively.Fifthly, the percentages of project costs of foreign investment projects in tourism,industry and manufacture, infrastructure and other, and agriculture and agro-industry sectors tototal project cost of foreign investment projects during 1994-2004 were 46.38, 33.02, 15.80 and4.80 respectively. The amount of fixed assets of FDI flow fluctuated with greater flow in late1990s then fell down considerably in early 2000s and bounced back in 2005 with amount of USD 1,162 million. During 1996-2005, the total approved fixed asset of FDI was 14 per cent of GDP. During this period, industry sector absorbed the largest share of FDI, i.e., 55 per centfollowed by 41 per cent in service sector, 21 per cent in tourism sector and seven per cent ininfrastructure sector.

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