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Investment: Catalyst of GDP and Stock Market

Table of Contents



Market Variables5


Exchange Rate and Economic Development6

Trade Flows and Trade Discrimination7

Investments and Economic Development7

Exploitation of New Markets12

Searching of Productive Efficiency14

Factor Differences for Economic Development14

Search of Strategic Assets15

Mergers, Acquisitions and Competition Pressure17

Other Reasons of FDI18


Investment: Catalyst of GDP and Stock Market


The study is related to the comparison of the effects of foreign direct investment in relation to GDP and stock market performance. Direct foreign investment, or foreign direct investment (FDI), is long term investment by entities of one country in companies in the country through joint ventures, management, or transfer of technology. In addition to this, the study also focuses on the more prominent factors that affect the GDP and stock market performance due to the foreign direct investment. In recent years, investment flows to developing countries have risen steadily and rapidly. FDI is direct investment in contrast to the indirect investment of shareholding; purchasing stock in a foreign company is not an example of FDI.

The study particularly focuses on the important effects of investment in economic development, particularly GDP and stock market performance. Moreover, the paper investigates the nature of investment flows in context of GDP and stock market performance, its impacts and the various determinants, which govern its levels and performances. The paper discusses investment with respect to overall trends including stages, sources and their regional, sectoral and sub-sectoral distributions. Positive trends are observable in both contracted and actual investment stocks with common jumps occurring in the early eighties because of the infusion of massive investment into the petrochemicals sub-sector. FDI in these countries is seen to be predominantly of the joint venture form while Greenfield investments expected to accelerate after the imposition of a New Investment Law permitting these types of investments. Sectorally, the manufacturing sector attracts the largest share of investment flowing in the economy which contributes to the stock market and gross domestic product. This is attributable to the fact that most of investment tended to flow to the heavy Petrochemical industry comprising the majority's share of total foreign investments. Moreover, the paper then discusses the determinants of both contracted and actual investment. The roles of market size, economic integration via international trade, wage rates, and country risk in attracting investment. Empirical methods used to gauge the issues include causality tests on FDI and other variables of the economy plus conventional regression models on the determinants of investment themselves. Results obtained on the empirical trials show that activity GDP levels affect investment in its contracted and actual forms positively, significantly and in a robust fashion. Exports proved a significant negative determinant of the investment. Domestic investments proved to be negative determinants on the contracted investment with the indication of a possible crowding-out effect in that regard.


There are several reasons why a company decides to invest in another country l. Almost all who have offered arguments for the existence of FDI can be grouped under three basic objectives; the attempt to enter new markets, increase production efficiency through cost ...
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