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more profoundly with the inception of economic liberalism across the world. The new phase of
globalisation has connected the different economies of the world into a chain. In this new phase of
globalisation market economy acquired higher value of currency. Technologydriven and knowledge
based economy have tended to smooth the process of weaving the world economy into a chain. Foreign
Direct Investment (FDI) ,no doubt, can play a major role in this process. It has the very capacity to
infuse enthusiasm for development in an economy by giving sufficient support and playing a pivotal
role,if necessary.
FDI sometimes supposed as a foreign tool to mould domestic policies according to its own interest.
This mindset is prevailed in many developing countries due to their erstwhile bad experience of
colonialism. They found it conducive to adopt importsubstitution policy instead of exportpromotion
policy. On the face of it,developing countries and more of countries of South Asian region namely
Srilanka, India, Pakistan,Bangladesh,Nepal and Bhutan hesitated to give required incentives to attract
FDI. As a result of this these economies of South Asia lagged behind to attract FDI in comparison of
other economies of other regions. Notably, Srilanka has pioneered the way to give incentives to attract
FDI in South Asian territory in the decade of 1970’s. Further, other economies of the region have
followed the suit in the beginning of 1990’s.
The major incentives to attract FDI is reduction of tariff and nontariff barriers, deregulation of market,
abolition of permit and licensing raj and other politicoeconomic structural changes. The performance
of different countries to attract FDI depends on the extent they have addressed these bottlenecks in the
way of FDI. Notably the inherent characteristics of different developing economies have their caliber
and desire to provide incentives to attract FDI. These economies having different structural
characteristics have followed different definitions in regard to FDI.
To define FDI is a great challenge. There are some definitions of FDI given by different institutions
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According to Balance of Payment Manual(BPMS) (IMF 1993)_ “ FDI is an investment made to
acquire lasting interest in enterprises operating outside of the economy of the investor. The BPMS
suggests a share hold of 10% of equity ownership to qualify as an investor as a FDI.”
According to scholars such as Krugman and Obstfeld(2000)___ “FDI as international capital flows
from a firm in one country, which creates a subsidiary of the parent economy in other country or which
allows the firm to obtain a controlling interest in a foreign firm. FDI is distinguished from other forms
of international capital flows in that it goes beyond a transfer of resources, also it involves the
acquisition or control of assets in other country.”
According to WTO(1996) FDI means__ “When an investor based in one country(the home country)
acquires an asset in a country(the host country) with an intend to manage control.”
According to OECD(1996)__ FDI as reflecting the objective of obtaining a lasting interest by a
resident entity in one economy(direct investor) in an entity resident in an economy other than that of
the investors.
According to the definition of Oxford dictionary__ FDI is such an investment under which foreign
investment made to install new entities of production and generate employment. These investments is
more of called real sector investment.