Studies in REGIONAL & URBAN PLANNING
Issue 11b, December 2008

FOREIGN INVESTMENT IN DEVELOPING COUNTRIES. A CASE STUDY: ROMANIA

Bratu Stefan

Prof. PhD, Faculty of Economics and Business Administration,
Finance Department, University of Craiova, ROMANIA

Gruescu Ramon

Assoc.Prof. PhD, Faculty of Economics and Business Administration,

Economy Department, University of Craiova, ROMANIA

Bratu Raducu

PhD student, Faculty of Economics and Business Administration,
Economy Department, University of Craiova, ROMANIA

Abstract. It is often stated that a high level of foreign direct investments in a country generates growth effects on the economy of the home country by facilitating local investments, increasing consumption, transferring technology and know-how, increasing exports, etc. At the same time, the influx of capital though the portfolio foreign investments leads to the development of the capital market, of specific understructure or to the reduction of capital cost. The FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. Thus, FDI contributes to economic growth only when a sufficient absorptive capability of the advanced technologies is available in the host economy. The article analyses the business and the investment environment, the attractiveness of Romania as an investment destination and the impact of the foreign direct investments on the economic development of the country.

1. INTRODUCTION

Irrespective of the form the foreign investments are carried out, it is certain that the presence of the foreign capital in the home country is contributing, along with local economization, to the cover, even partial, of an economy’s financing outfit. The penetration of foreign capital is seen as a prerequisite of general development, due to its effects of entailing spread in the entire economy. This article surveys the latest developments in the literature on the impact of inward foreign direct investment on growth in developing countries. In general, FDI is thought of as a composite bundle of capital stocks, know-how, and technology, and hence its impact on growth is expected to be manifold and vary a great deal between technologically advanced and developing countries. The ultimate impact of FDI on output growth in the recipient economy depends on the scope for efficiency spillovers to domestic firms, by which FDI leads to increasing returns in domestic production, and increases in the value-added content of FDI-related production. The FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. Thus, FDI contributes to economic growth only when a sufficient absorptive capability of the advanced technologies is available in the host economy. In the end of the article we have analysed the business and the investment environment from Romania, its attractiveness as an investment destination and the imapct of the foreign direct investments on the economic development of Romania.
Research methodology includes a bottom up” analysis of the mentioned indicators. The economic method of comparison has been used to compare macroeconomic effects and positive implication of foreign direct investments is determined by their contribution to economic growth.

2. FOREIGN DIRECT INVESTMENTS AND THEIR ROLE IN THE ECONOMIC DEVELOPMENT

Transformation in to the market economy in the ex-communist countries means that the private sector has been reborn and the main investors are persons or private companies, which in turn seek primarily to obtain most profit. This situation results in a certain