The Importance of Attracting Foreign Direct Investment

Foreign Direct Investment (FDI) refers to the flow of capital from one nation (home state) to another (host state). Typically, this is done by acquiring shares in the locally established enterprise or by investing and establishing fresh ventures in the host state. In an era when globalization prevails, countries worldwide are scouting actively to attract FDI. Unlike traditional forms of debt financing, FDI serves as an ideal debt-free approach to economic development that ultimately facilitates trade, jobs creation, transfers of know-how’s and technologies in the host state.

Developing nations such as Belize, have realized the instrumental role that FDI serves in the path toward economic development. According to the Economist Intelligence Unit (2006), it was noted that a rise of one percent in the ratio of the stock of FDI (to Gross Domestic Product), will raise GDP by 0.4%. It is thus well illustrated that for every dollar of FDI attracted, it will contribute about $0.50 toward the overall production of national output – hence raising the economic growth by close to half percent.

In light of the above, the overall rationales for attracting FDI to countries such as Belize are well documented. To date, FDI has been observed as a key source to generate employments, boosting foreign exchange earnings, facilitate trade (local and international), and trigger innovation and productivity. In short, FDI is viewed as an efficient way to attracting up-to-date technology, management practices, and even an assured market. It is thus imperative that a favorable business environment, along with consistent public policies be in good order in the quest to attracting FDI. As is, Belize has done comparatively well in fostering such a conducive business environment to attracting foreign direct investments!