Q1: distinguish the impact of local and foreign investments on economic development of the country.

INVESTMENT:
Investment has different meanings in finance and economics. In Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling 1. In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money. 2. In business, the purchase by a producer of a physical good, such as durable equipment or inventory, in the hope of improving future business There are basically the two types of investments these are: 1. Foreign investments (i.e. FDI) 2. Local investments\inward investments The impact of these above investments is discussed below

Promoting Inward Investment\impact of local investments on economic development Inward or local investments
The promotion of inward investment means to attract businesses to an area from elsewhere in the country and from other countries. Attracting large manufacturing and service sector employers into communities is one of the most difficult, frustrating and riskiest of all LED strategies. This is partly because there are far fewer investors than there are communities seeking to attract them and many communities are prepared to offer massive incentives to inward investors. Foreign direct investors often prefer Greenfield, edge-of-town sites. To accommodate these wishes, communities often over-ride their planning policies in order to attract the investment. This may bring with it considerable problems and may contribute to urban sprawl and transportation problems. Careful consideration should be given to the costs and benefits of attracting inward investors. When locating a business, inward investors seek:

A stable macro-economic climate A stable political and regulatory environment Market access and open competition

A welcoming environment Available sites and/or premises Appropriate, available and reliable utilities and transportation Available skilled workforce Available local suppliers and resources Appropriate education, training and research facilities A good quality of life, especially when bringing ex-patriots Manageable regulation and taxation systems Incentive schemes

Impact of local investments on economic growth

The benefits when success is achieved can be great. Besides direct employment, an increase in the tax base and indirect employment, there are potential wins for the local community through up-skilling of the workforce, increases in wages, and opportunities for local SMEs that supply and buy from these investors. Inward investment strategies are likely to be successful when:

They are a component of a broader LED strategy The community has the appropriate hard and soft infrastructure in place or available to support the likely investments Targeted investments fit the competitive advantage of the receiving community (normally a sector/cluster approach is likely to be most successful) Marketing strategies are carefully prepared, budgets are appropriate and follow up procedures are in place Incentive programs are considered, varied and not excessive Staff involved in attracting strategic investors have an understanding of investment needs and what their community has to offer

Opportunities for local businesses are optimized through careful aftercare programs. This means that when a new investor is attracted to a community, every opportunity is taken to encourage the investor to source his/her supplies locally, enabling supply chain advantages to be exploited locally. This is most successfully achieved through developing an investor aftercare program. Such programs are aimed at ensuring investors are happy and that they are given every opportunity to source their inputs from the local community.

Local Economic Development (LED)

The purpose of local economic development (LED) is to build up the economic capacity of a local area to improve its economic future and the quality of life for all. It is a process by which public, business and nongovernmental sector partners work collectively to create better conditions for economic growth and employment generation. Local economic development (LED) offers local government, the private and not-for-profit sectors, and local communities the opportunity to work together to improve the local economy. It focuses on enhancing competitiveness, increasing sustainable growth and ensuring that growth is inclusive. LED encompasses a range of disciplines including physical planning, economics

and marketing. It also incorporates many local government and private sector functions including environmental planning, business development, infrastructure provision, real estate development and finance. The practice of local economic development can be undertaken at different geographic scales. A local government pursues LED strategies for the benefit of its jurisdiction, and individual communities and areas within a local government's jurisdiction can also pursue LED strategies to improve their economic competitiveness. Such approaches are most successful if pursued in partnership with local government strategies. LED is thus about communities continually improving their investment climate and business enabling environment to enhance their competitiveness, retain jobs and improve incomes. Local communities respond to their LED needs in many ways, and a variety of approaches can be taken that include: Ensuring that the local investment climate is functional for local businesses; Supporting small and medium sized enterprises; Encouraging the formation of new enterprises; Attracting external investment (nationally and internationally); Investing in physical (hard) infrastructure; Investing in soft infrastructure (educational and workforce development, institutional support systems and regulatory issues); Supporting the growth of particular clusters of businesses; Targeting particular parts of the city for regeneration or growth (areas based initiatives); Supporting informal and newly emerging businesses; Targeting certain disadvantaged groups

Foreign investment:

Definition
Private capital investment by firms of one country into those of another.

Impact of Foreign Direct Investment on Economic Development

Foreign direct investment has a major role to play in the economic development of the host country. Over the years, foreign direct investment has helped the economies of the host countries to obtain a launching pad from where they can make further improvements. This trend has manifested itself in the last twenty years. Any form of foreign direct investment pumps in a lot of capital knowledge and technological resources into the economy of a country. This helps in taking the particular host economy ahead. The fact that the foreign direct investors have been able to play an important role vis-a-vis the economic development of the recipient countries has been due to the fact that these countries have changed their economic stances and have allowed the foreign direct investors to come in and improve their economies.

It has often been observed that the economically developing as well as underdeveloped countries are dependent on the economically developed countries for financial assistance that would help them to achieve some amount of economical stability. The economically developed countries, on their part, can help these countries financially by investing in these countries. This financial assistance can be channelized into various sectors of the economy. The channelization is normally done on the basis of the requirements of particular sectors. It has been observed that the foreign direct investment has been able to improve the infrastructural condition of a country. There is ample scope of technological development of a country as well. The standard of living of the general public of the host country could be improved as a result of the foreign direct investment made in a country. The health sector of many a recipient country has been benefited by the foreign direct investment. Thus it may be said that foreign direct investment plays an important role in the overall economic and social development of a country. It has been observed that the private sector companies are not always interested in undertaking activities that help in improving the infrastructure of the country. This is because the gains form these infrastructural activities are made only in the long term; there are no short term benefits as such. This is where the foreign direct investment can come in handy. It can also assist in helping economically underdeveloped countries build their own research and development bases that can contribute to the technological development of the country. This is a very crucial contribution as most of these countries are not able to perform these functions on their own. These assistances come in handy, especially in the context of the manufacturing and services sector of the particular country, that are able to enhance their productivity and ultimately advance from an economic point of view. At times foreign direct investment could be provided in form of technology. Else, the money that comes in a country through the foreign direct investment can be utilized to buy or import technology from other countries. This is an indirect way in which foreign direct investment plays an important part in the context of economic development. Foreign direct investment can also be helpful in assisting the host countries to set up mass educational programs that help them to educate the disadvantaged sections of the society. Such assistance is often provided by the nongovernmental organizations in the form of subsidies. The developing countries can also tackle a number of healthcare issues with the help of the foreign direct investment.

Balance-of-Payments Effects of FDI

A country must compensate for a long-term trade deficit by: -reducing its capital reserves -attracting an influx of capital via the receipt of foreign direct investment -the purchase of public or private debt by foreign governments or individuals -the receipt of unilateral transfers (e.g., foreign aid)

Ultimately, one countrys deficit is another countrys surplus.

Selected Economic Growth and Employment Effects of FDI

Home Country LossesFDI outflows may create jobs abroad at the expense of jobs in the home country. Host Country GainsFDI inflows may result in the transfer of capital, technology, and/or managerial expertise, and well as the creation of new jobs. Host Country LossesFDI inflows may: Cream off premium resources Drive up local labor costs Displace domestic investment Disadvantage local competitors Destroy local entrepreneurship

Advantages of Foreign Direct Investment

In the global economy today, we see many developing countries competing for foreign direct investment. FDI is said to be an important factor for spurring the development of a nation. Lets take a look at some advantages of foreign direct investment to a host country:

Integration into global economy A developing country, which invites FDI, can gain a greater foothold in the world economy by getting access to a wider global market. Technology advancement FDI can introduce world-level technology and technical know-how and processes to developing countries. Foreign expertise can be an important factor in upgrading the existing technical processes in a host country. For example, the civilian nuclear deal between India and the United States would lead to transfer of nuclear energy know-how between the two countries and allow India to upgrade its civilian nuclear facilities. Increased competition - As FDI brings in advances in technology and processes, it increases the competition in the domestic economy of the developing country, which has attracted the FDI. Other companies will also have to improve their processes and products in order to stay competitive in the market. Overall, FDI improves the quality of a products and processes in a particular sector. Improved human resources Employees of a host country in which there is an FDI get exposure to globally valued skills. The training and skills up gradation can enhance the value of the human resources of the host country.

Crux:
There are two types of investments which are discussed above both of them are playing a vital role in economic development of the country. There are some draw backs of these both kinds of investments but they are too important and beneficial for economic development of any country.

Sometimes the local investments become risky but they are also beneficial. Most of the times the FDI is risky but as we know that higher the risk higher the return. So the investments are the life blood of any business because no business can get maximum return without investment. The major differences between the local and foreign investments are as follows:

Foreign investment
1) The foreign investment is all about Investing the resources (labor, capital) Out sides the territory of the home Country i.e. (FDI). 2) the foreign investments are the most advantageous for the economic development of any country because this is advantageous for both the home and host country as well. 3) The foreign investments also have Some draw backs as it can be harm full For the home country and for the host Country as Host Country LossesFDI inflows may: Cream off premium resources Drive up local labor costs Displace domestic investment Disadvantage local competitors Destroy local entrepreneurship

local investment
1) The local investment is the investment of the resources within the territories of the home country i.e. (investments in SMEs).

2) the local investments play a vital role in economic development because it can encourage the local investors to invest in the SMEs, this can create the competitive Environment. 3) the local investment is less risky than the foreign investment as it can create compet-itive pressure so for that the firms have to make some LED strategies to eliminate these problems (discussed above)

Home Country Losses FDI outflows may create jobs abroad at the expense of jobs in the home country.
4) There are some draw backs of FDI But the FDI is more beneficial as it Can be advantageous it can Improved human resources Technology advancement Increased competition Integration into global economy 4) the local investment is also beneficial as it can encourage local invstors to invest in the SMEs and it also improves the standard of living of the people by giving employment opportunity to them and it saves the flying of capital and brain drain.