ABSTRACT

Foreign direct investment (FDI) is generally defined as a financial phenomenon that takes place whenever a company acquires 10 percent or more of the voting stock in a commercial entity incorporated in a foreign country (Cohen 2007). However this limited definition cannot capture the importance of FDI in the present context of globalization and underplays the fact that FDI is related more to ownership and control over a firm and asserting long-term influence on the trajectory of growth of a business entity. The degree of influence however does not always depend on the percentage of voting shares that a foreign investor acquires and can be maneuvered in several ways using the legal structure of a specific country depending on the nature of interdependence between the collaborating partners (Rao and Dhar 2010). There are large variations in the definition of FDI used by various countries, where some define on the basis of equity share while others relate to the power enjoyed by the foreign player. As a result there is little uniformity in defining FDI across countries and an absence of a standard measure for cross country empirical analysis. The importance of space and the regional factors that determine the inflow of FDI can primarily be captured in a theoretical discourse that goes beyond the simplistic assumptions of neoclassical production function. The notions of explaining capital flow by means of achievable marginal returns grossly fails to understand how elements embedded in space or regions create conditions for increasing returns and determine the future dynamics of growth. The other important aspect of course is the heterogeneity and specificity that influences outcomes, and hence analyzing the behavior of capital flow needs to be understood in the specific context.