The link between FDI and

Sustainable development
Presented by
Faisal Rashid 03(60D)
Mohammad Tahmid Hassan 31(60D)
Mohammad Asif Iqbal 56(60D)
Zarrin Tasnim Saeed 45(61D)
Economic Growth versus
Development
Economic Growth Versus Development
Economic Growth Economic Development

● Real GDP and Output ● Actual living standards and the

freedom .
● Real income per head – GDP per
capita
● Levels of literacy
● Levels of healthcare
● Quality and availability of housing
● Levels of environmental standards
● Life expectancy
Sustainable Development is defined as
“Development which meets the needs of
the present without compromising the
ability of future generations to meet their own
needs”
FDI: pros
• Key role in globalization
• Vital source of external capital
• Catalyst to economic growth in developing countries
• Employment generation
• Technology spill over
• Human capital development
• Factor productivity
FDI cons

FDI led growth results in environmental degradation

Crowding out effect
FDI trend in Recent years
● Global flows of foreign direct investment (FDI) fell by 16% in 2017 to an estimated $1.52 trillion
● Global FDI flows stood at $1.39 trillion in 2019, down marginally from $1.41 trillion in 2018.
Top 10 recipient of FDI
Germany, $40 billion
Canada, $47 billion
India, $49 billion
France, $52 billion
Hong Kong, $55 billion
United Kingdom, $61 billion
Brazil, $75 billion
Singapore, $110 billion
China, $140 billion
United States, $251 billion
Research Findings
• The effect of FDI inflows on richer economies was stronger than in poorer
countries.
• Location factors are a significant determinant of the effects of FDI.
• Positive relationships between the efficiency of FDI use and the level of 
development of financial markets in the recipient economies
Case studies
 Asian Economies
 Investment Destination for large Western MNCs

 Uniformity across Asian countries in embracing

FDI missing
 China VS south korea and Japan
 FDI inflows in South Asia grew by 4% in 2018 to
$54 billion.
 1970 to 2011 : the least developed
Asian countries attracted the least amount of FDI,
accounting for less than 1% on
average, while the more advanced developing
countries welcomed the main share, more
than 90%.
FDI inflow in 2018 -2019 In South Asia
Country FDI inflow % Change

Srilanka 1.6 bn 4%

Pakistan 2.4 bn -27%

Nepal 1.6 bn -63%

Maldives 0.55

Bhutan 0.5 bn -160%

East Asian Trend
● The appreciation of the Japanese yen 
● This led Japanese multinational corporations (MNCs) to transfer many of these operations to other
Asian economies 
● every 1 percent increase in Japanese FDI to an emerging Asian economy over the 1985-2011 period
increased growth in that economy by between 0.58 and 0.69 percent.  
● Beneficiary : China, South Korea, Taiwan
●   Technology transfer and learning in emerging Asia
●   FDI flows lead to large welfare gains in countries like China, Indonesia, Malaysia, the Philippines,
and Thailand.  ( Lee and Shin)
 Japan
Flow of Inward FDI into Japan since 1990s
1990 to1996 stood at around $1 billion yearly
.$12.7 billion for the year 1999. 

Positive Factors:
Deregulation
Temasek :Singapore based investment concern bought stake worth 10% in i-
Logistics Corp (which is a transportation and warehouse company) in March
2006. 
An increased occurrence of corporate bankruptcies resulted in foreign acquisition
of many business companies in Japan
 Singapore
• Singapore was the fourth largest recipient of FDI inflows in
the world in 2018, after the United States, China and Hong
Kong. 
• FDI inflows rose to USD 77.65 billion in 2018, from USD
75.72 billion
• The main investors in Singapore are the United States,
British Virgin Islands, Cayman Islands and the Netherlands. 
• Financial and insurance activities are by far the main
recipient of foreign investment, accounting for 54.5% of all
FDI stock.
FDI in Singapore
Foreign Direct
2016 2017 2018
Investment
FDI Inward Flow 73,863 75,723 77,646
(million USD)
FDI Stock (million 1,112,642 1,393,380 1,481,033
USD)
Number of Greenfield 391 390 420
Investments***
FDI Inwards (in % of 83.4 n/a n/a
GFCF****)
FDI Stock (in % of 369.2 n/a n/a
GDP)
 Singapore: Pros
• TradeNet System:
• Openness to trade
• reducing the statutory corporate tax rate
• international rankings for its strong and dynamic IP protection regime.
• a high-quality industrial real estate park,
•  political stability 
• HDI : 0.935 ( ranked 9th in 2018)
India
• India is among the world’s fastest growing economies 
      a top market for foreign direct investments (FDI) globally. 

• total FDI investments in India in the first nine months of fiscal year (FY)
2019 (April – December 2018) were approximately US$ 33.5 billion. 

• The services sector attracted the highest FDI equity inflow of US$ 6.5
billion, followed by computer software and hardware – US$ 4.9 billion,
and telecommunication – US$ 2.2 billion.

• The top sources for the FDI were Singapore, with US$12.9 billion,
Mauritius US$6 billion, Netherland US$2.9 billion, and Japan US$2.2
billion.

• FDI to India, which accounted for 70 to 80% of inflows in sub-region,

increased by 6 % to $42 billion.
India
● Since 2017, India has launched a series of reforms to liberalize its foreign investment norms
● It allows FDI of up to 100 percent of the equity shareholding
● Economic Partnership Agreement :Tata Motors acquired Daewoo Motors of Korea.
India : Sustainable Growth
HDI : 0.647 ( medium)
A number of projects have been implemented
permission for FDIs to provide up to 100% of the financing required for the construction
of bridges and tunnels
Saudi Arab
In past years, FDI flows to Saudi Arabia have followed a downward trend
World Investment Report 2019, FDI flows increased by more than 120% between
2017 and 2018, reaching 3.2 billion.
Vietnam
• Disbursement of FDI projects also rose by 9.8
per cent year-on-year to $2.58 billion, hitting a
three-year record high.
• licensed two projects of American giants –
Swedish Furniture and China 
China
● China received about 20 percent of all FDI to developing countries over the year 2000 -2010
● China's Foreign Direct Investment (FDI) increased by 57.1 USD bn in Dec 2019
● Industries with higher FDI have higher productivity
● Focus on Export Oriented manufacturing FDI
● Trade openness : Economic zones and Park
● HDI : 0.758 ( high )
Cons
• Costs in China have increased, some companies have shifted the production
garments, toys and footwear to ASEAN.
• Producers of low value-added products such as textiles are shifting production
to Vietnam and other Southeast
 Malaysia
• FDI into Malaysia increased to MYR 3.73 billion
mainly into services, construction and manufacturing sectors,
particularly from Singapore, Ireland and Hong Kong
• 1980 : Japan Flying Geese
• the first country in ASEAN to establish diplomatic relations
with China
• BRI China benefit Malaysia
• Chinese approved foreign direct investments (FDI) into
Malaysia’s manufacturing sector grew from RM0.6 billion in
2010 to RM3.85 billion in 2017
• Huawei employs 2,300 staff in its Malaysia operations, with
75 percent of the jobs going to locals.
Bangladesh
● FDI in Bangladesh went up by 67.94% in 2018
● Topping the list in South Asia
● Equity investment increased by 108.6% to $1.12 billion, 
● Reinvestment increased by 2.32% to $1.30 billion.
● Bangladesh  FDI inflow $3.61 billion, 
● While China became the leading investor in the country with $1.03 billion, 
● the United States dropped to fourth with only $0.17 billion 
● Netherlands stood as the second largest investor with of $0.69 billion, 
● the United Kingdom was the third highest investor with $0.37 billion.
Bangladesh
● Significant investments in power generation
●  labor intensive industries like readymade garments, 
● $1.5 billion acquisition of United Dhaka Tobacco by Japan Tobacco.
● Specialized Economic Zones
● Bangladesh HDI :0.614 ( middle)

Bangladesh’s textile and apparel sector has received a foreign investment of $421.68 million( 15.70% growth)

South Korea has made the largest investment of $103 million in the country’s textile sector, 
Hong Kong invested $66.13 million,
United Kingdom invested  (UK) $42 million
Challenges

Bangladesh is 176th out of 190 countries in term of doing business

infrastructure
FDI in G20 Countries
G20 Countries
 FDI can potentially be either beneficial or detrimental to domestic investment
FDI Position
  FDI Out ward position FDI In ward position
  In USD million As GDP % In USD million As GDP %
Country 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018
 
US 6412138 7828747 6452718 34.3 40.1 31.4 6586391 7844202 7432134 35.2 40.2 36.1
 
China 1357390 1809040 1899012 12.2 14.9 14 2755147 2725662 2761349 24.7 22.4 20.3
 
Indonesi 59134 65928 72 995 6.3 6.5 7 249859 231492 224717 26.8 22.8 21.6
a  
Russia 334 275 380 047 344 090 26.1 24.1 21.8 393 910 441 123 407 362 30.7 28 25.8  
Saudi 73 973 84 437 105 063 11.5 12.3 13.4 231502 227566 231603 35.9 33 29.6
Arabia  
G20 countries
In 2019,
In Flow- FDI inflows
● FDI inflows to the G20 decreased by 8%. 
● In the first half of 2019, the major FDI recipients worldwide were the
United States followed by China, France, Brazil and India.

Out Flow-
● FDI outflows from the G20 increased by 41%.
● In the first half of 2019, major sources of FDI worldwide were Japan, the
United States, Germany, the United Kingdom and China.

FDI outflows
Focus of G20
G20 think tank is focused on enhancing international support for implementing effective and
targeted capacity-building and sustainable development ion Africa & LDCs

FDI has been included

in G20 agenda
FDI in Developing Economies
Though Global FDI decreased
● The share of developing countries in global FDI increased to 54 percent, standing
at $706 billion
Better ROI for FDI
In developing countries
 FDI has become an important source of private external finance for the Size and Relative
stability of FDI

 A significant part of investment between developing countries (South–South FDI)

is ultimately owned by developed-country MNEs

 It makes up 39 percent of total incoming finance in developing economies as a group

 Outward investment by MNEs from developing economies declined by 10 per cent to $418 billion
FDI focusing on sustainable development

Integrating
Special
ESG factors Sustainability
Economic
into investment Bonds
Zones
decisions
Prospective FDI in developing economies
● Agro focused
● Infrastructure 
For sustainable development in developing
economies
● policymakers need to enhance their Coherence and Synergy with national and international
investment policies and other policy areas, including social and environmental policies

● Balance between the role of the market and the State, and avoid overregulation.

● New investment policies moving in the direction of Liberalization, Promotion and

Facilitation.
COUNTIRES FAILING TO
ATTRACT FDI
NEPAL

 FDI has averaged just 0.2 percent of GDP over the last decade,
which is one of the lowest in the world
 Political instability as the biggest constraint to private sector
investment and growth in Nepal.
 Electricity and roads are particularly large infrastructure constraints
compared to regional and structural peers
SRILANKA
 Sri Lanka fail to attract large FDI flows in to their countries as domestic markets
are small in size.
 Impossibility of attracting FDI due to lack of openness in the economy as the
export manufacturing sector is governed by rigid rules and the issues faced by
the industry due to lack of or abolishing of quota.
 Labor market rigidities and high wage rates in the formal sector with
comparison to other countries like china, Vietnam is often viewed as a deterring
factor in order to attract significant in flows in to the export sector in particular.
Lower productivity with comparison to countries like China and countries in sub
Saharan Africa and lack of engineers and technical staff is reported as holding
back potential foreign investment, especially in manufacturing exports sector.
Further it lessens the attractiveness of investing in productive sectors.
 The investment climate has not improved in Sri Lanka as a result of lack of good
governance, corruption, political instability and disturbance, bureaucratic inertia
and poor low and order situation.
MIDDLE EAST AND NORTH AFRICAN REGIONS
 FDI operations, in the rest of the world have increased after 2010, while flows to the MENA
region continued their downward trend in the wake of the "Arab Spring".
 The majority of governments in MENA countries (in Tunisia, Libya, Egypt, and Yemen) have
been overturned.
 Syria, Lebanon, Iraq, and Bahrain still are in turmoil.
 The Israeli–Palestinian conflict and the confrontation over Iran’s nuclear program are far from
settled
ADVERSE EFFECTS OF FDI
 Crowding out effect of FDI
 Negative wage spillovers
 Profit repatriation
 Environmental issues
 Dual economy effect/Dutch disease effect
Dutch Disease effects in Azerbaijan
 Azerbaijan had had a moderately developing economy with a consistent annual GDP growth above 10% until
2005.
 After a large amount of FDI’s in energy sector, the economic situation critically changed and grew
significantly in 2005-2009 years
 The competitiveness of non-tradable commodities have risen during this period in Azerbaijan. Especially, oil
boom fueled banking sector, real estate and construction.
  Main non-oil exports of the country agriculture and metals sector have not seen a significant growth
 Agriculture with the biggest labor force occupation accounts for 6% in GDP contribution where as the energy
sector resulted in 90% of exports and 60% GDP contribution implying that main labor force of the country is
located in less competitive and less efficient sector
Conclusion
● FDI impacts depend to a large extent on the capabilities of domestic firms in host countries. Hence, it is a
priority to improve the competitiveness of local firms (especially SMEs). 
● Policy efforts in the FDI area should focus not only on the quantity of FDI received but also on its quality.  
● We should deal with the impacts of FDI on unemployment and wage inequality
Thank You!