Complete 4 page APA formatted essay: Determinants of foreign direct investment: A comparative study of the aspects that have a significant impact on FDI inflow in India and China.
The first construct considers an important indicator that is the interest rate differentials. It has been studied that a low interest rate differential indicates a high efficiency (Eichengreen and Tong, 2007). Although the researcher says that interest rate differential can be used as an indicator to determine efficiency, it is centrally controlled in India as well as China (Buckley, et al., 2007). Also, a study revealed that interest rate differential does not prove to be a good indicator in China as the Chinese economy is a free market economy (Eichengreen and Tong, 2007).
Secondly, providing loans to different enterprises have different impacts on FDI benefits in China. Private enterprises are dynamic in nature and are expected to be highly beneficial from FDI. Despite rapid growth, the financial system of both India and China suffers from a problem of misallocation of credit (Eichengreen and Tong, 2007).
There are other determinants of FDI like the market size which is measured in terms of GDP that can act as a key determinant to FDI. Market based FDI has an aim to explore new markets and supply goods and services to these new markets (Buckley, et al., 2007). Inflation rate can act as another indicator and the changes in inflation rate of the domestic and foreign country affects the decision of the multinational companies to invest. However, the two developing countries are trying to open up to foreign direct investment as they find it beneficial to develop their economy (Buckley, et al., 2007). Researcher says that FDI inflows have been lower in India as compared to China, and the policy instruments in India needs to be evaluated in order to attract FDI (Buckley, et al., 2007).
The researcher is expected to undergo this research on the impact of inflow in foreign direct investment on the countries like India and China through an appropriate methodology (Mukherji and Albon, 2009). The research is basically expected to be carried out through secondary