The impact of FDI on growth in developing countries-an over view

Foreign direct investment plays an important role in the economic development of the country. It helps in transferring of financial resources, technology and innovative and improved management techniques along with raising productivity. An Indian company may receive Foreign Direct Investment either through automatic route or government route. N the last years, investment in the agricultural sector in developing countries has been neglected and the share of public expenditures as well as Official Development Assistance (ODA) in agriculture has declined. The rising commodity prices have served as a wake-up call to support agricultural development and ensure food security and poverty education. FAO has estimated that investment of USD 83 billion per annumis required in developing countries’ agriculture to meet the food demand in 2050. This estimate does not include the investment in public good provision such as infrastructure, storage facilities, market development or R&D. Government spending and involvement (e.g. through ensuring agricultural institutions, extension services, education, sanitation) in agriculture and provision of public goods are suggested to be most effective in increasing productivity, enabling capital formation, providing incentives and opportunities for farmers to increase their private investment, and strengthen the sector and smallholder farmers in order take advantage of the prospective Foreign Direct Investment (FDI) in the sector. FDI in agriculture of developing countries was only 1% of total world FDI inflows, but has increased in the recent years, in particular in Asia and Oceania, Latin America and the Caribbean and South-East Europe and the Commonwealth of Independent States. However, developing countries receive (I) less FDI in food processing than developed countries, implying that a large share of higher value added activities takes place in developed countries, and (ii) more FDI in cash crops, e.g. renewable energy sector, than staple crops. Large-scale cash crops production may drive small-scale farmers out of production, increase farmer’s production risks, and negatively impact food security.