Comparative study of FDI business regimes of India, China and Russia

Abstract

Foreign direct investment (FDI) has been traditionally regarded as a catalyst for development. Several examples from countries all over the world have showed that FDI does indeed contribute significantly to national objectives of growth. Over the years, there have been a number of studies that have focused on the effect of FDI on the host country in terms of growth, equity, technology transfer, human capital development to name a few. In this present study, we aim to do a comparative analysis of the FDI regimes of three major developing countries, namely – India, China and Russia. We have chosen these countries keeping in mind their huge size and market growth potential. Given that the market size is also one of the potential determinants of FDI, the three countries offer a good relative comparison. The focus of the study is to gain a historical perspective on the evolution of FDI regimes, their current status and finally a comparative scorecard along several dimensions. We will verify the prevailing trends of FDI in the three countries and make comments about the approach followed to build our scorecard. Finally we will conclude highlighting the improvements that can be made to the approach based on a more rigorous study procedure. The study is organized in seven major parts. First part deals with the general nature of FDI, in brief. We highlight the broad nature of how FDI works as well as the main determinants of FDI as discussed in several research papers on the subject. We also highlight some of the developmental impacts that are generally associated with FDI. In part two, three and four, we highlight the history of the FDI regimes in each of the three countries, major FDI statistics over the years. In section five, we refer to some of the comparative rankings that are commonly followed in the world and draw out comparison between the three countries with respect to these parameters. Global Competitiveness Index (GCI) of the World Economic Forum forms the backbone of this section with other indices like Global Effectiveness Index, Doing Business Ranking, Corruption Index, FDI restrictiveness Index forming the supporting structure. In section 6 we have done a comparative analysis of the regimes highlighted in the previous parts and we also design a scorecard in order to do a more robust comparison. We have designed our scorecard by taking in all the major determinants of FDI. Some of the parameters chosen for the scorecard will be directly taken from section five, while others will be calculated through logical reasoning and analysis. Finally, in section seven, we will critic our methodology of building the scorecard and suggest possible improvements in the same followed by conclusions.