Impact of FDI on Economic Growth

This assignment delves into the crucial relationship between Foreign Direct Investment (FDI) and economic growth. It analyzes empirical evidence and theoretical frameworks to understand how FDI influences a nation's economic development. The assignment explores key factors such as domestic investment, foreign aid, corruption, intellectual property rights, and technological transfer that shape the impact of FDI on economic growth.

INTRODUCTION
Business is considered as most advisable and most practicable activity. This is a kind of
activity which is being regulated all over the world. Some of the business organisations have
made an interest to create and develop their business at international level that is making
business relation with the other countries(Moosa, 2016.). There are many other business
organisation who are looking forward to set their business at international level by investing into
other countries. Such investment is called international investing which is a kind of strategy of
selecting investment which are globally based and considered as the part of an investment
Portfolio. The following question which describe all the important laws and treaties which are
connected to international investment. The following discussion will also include various kind of
law and regulation which has been set up to describe international investment law in context to
treaty shopping which is prevailing globally all over the world.
PART II
International investment is considered as strategy used by various kind of organisation to
select what kind of investment instrument are present globally. It is very important for all the
business organisation who have been carrying out their business globally to understand what are
the policies and schemes for investing in the international market. Such action is taken by al,l the
business organisation in order to incurred profits in the company. In order to safeguard such
international investment for all the business organisation government and the body who is
governing law has made several attempt for protection by implementing various kinds of
international investment law(Moran,2012.). When an international investment is being taken by
all the organisation present globally, there are many kinds of risks present for an example, there
will change in the market value, there shall be low liquidity sometimes, at times situation comes
when all the important information are not easy accessible, there might be fluctuation in currency
exchange rates which is why there are laws which is being implemented by the government in
order to ensure that all the rights and the interest are being protected by the government(Lall,
Narula, 2013.). International investment law is one of the aspect which is enacted by the
international government body to take care of the rights and duties of the business organisation
which are being settled globally. International investment law is the very important and emerging
law which will cover the field if international law. These law shall addresses the regulations

related to the behaviour of sovereign(Wu, Ma, Zhuo, 2016.). In international investment law
there are many bilateral and unilateral treaties of which at present there are 3000 are in force.
Another element which is connected with the international investment law is the arbitration
process which is established in the situation when the organisation settled their business globally
encounter any kind of breach in contract or there shall be any kind of infringement in the rights
and duties of the parties then arbitration is the body which will resolve all the problems related to
business activity present globally or related to any kind of treaty which is being signed between
the parties(Mathur, Singh, 2013.). Another provision which is included in the international is of
making treating with the international countries that is when the organisation are interested in
making the contract or the agreement with the companies then there are several treaties to be
made. A treaty can be defined as the agreement which is made by the party or the companies of
two different countries to set a totally new venture in a different countries. Such treaties are
made under the international law namely sovereign states and international organisation. which
binds the parties into an agreement(Fajgelbaum, Grossman, Helpman, 2014.). A treaty can also
be refereed as an agreement or the protocol. Treaties can also considered as contract which
means willing of parties to bind into a contract and assuming legal obligations on themselves. A
legal obligation to a contract means, when there are rights and duties of the person or the party
arising out of contract. There are many kinds of contract which is being signed between the
parties and raise certain obligation of the party as well as for the market also. Such obligations
are also mentioned in the treaties which are made between the parties(Allan, 2012.). For an
example in the case of Darcy v Allein [1603] 77 Eng. Rep. 1260. established a fact that it is
improper as well as illegal for any kind of individual to establish or to allow monopoly over a
trade under any treaty made in international law(Büthe, Milner, 2014.). It was considered as the
early landmark case in English law which have established the provision of monopoly in the
market. Monopoly can be explained as the situation in the market where all the market activities
whether it is profit or losses are governed or taken by just one individual and making an adverse
effect on the market. The facts of the cases states that plaintiff, Edward Darcy received a letter of
license to import and sell playing cards and to be marketed in England. All the trade related to
cards and arrangements was apparently secured in the party by the queen's concern controlling
trade by one person had became a problem(Cavusgil, Knight, et.al, 2014.). This was giving an
adverse effect on the market practice as well. When the defendant tried to sell his own playing

cards, Darcy sued to prevent this competition(Javorcik, 2016.). The case has been taken by the
house of lords, in the judgement, the bench of queen determined that a monopoly which is being
granted by the queen was invalid because these kind of monopoly promote idleness and also
prevent or restrict the person who wants to raise their skill in trade practice etc. it was further
stated in the judgement of the case that a monopoly damage tradesman as well as it violate the
interest of those market operators who wants to raise themselves in the upcoming market when a
monopoly is being established in the market. Another case which is being noticed in regard to
treaties on international level is Furniss v Dawson(Farole, Winkler, 2014.). It is considered as
one of the important case of house of lords in the context to UK text.
As it has been seen in various context that there are many treaties which is being signed or
agreed by different kind of parties who are interested in making a contractual relation or forming
any kind of agreement with the company of another country to establish a totally different
company. One of the treaty is treaty in shopping(García, Jin, Salomon, 2013.). It is a kind of
treaty in which parties from different country form a contract or the agreement to establish a
company in different country to avail the benefits of tax occurring in the jurisdiction of that
company. It has been seen that not every country has the favourable kind of tax treaty. A
favourable treaty can be refereed to any kind of protocol which is established for the betterment
and in context to tax(Olney, 2013.). Generally it has been appeared as a fact that some of the
countries are lacking in any kind of tax policies or does not possess any tax treaties in that case
they look for the country where any kind of tax treaty is prevailing and the treaty is beneficial for
the company or the business organisation who is planning to establish a new kind of business in
the other company. Sometime there are situations arise where a company of a particular country
was not able to enjoy all the tax benefit as there were not treaties present in the company as well
as there were no treaties preset internationally by which a situation arise in which the company is
not able to enjoy those tax benefits(Marinova, Child, Marinov, 2015.). In these kinds of
situations the business organisation set or make an agreement with company residing in another
country to avail all the tax benefits. Such practice of treaty shopping is being done and structured
for multinational business to attain all the favourable and advantage of tax treaties available in
certain jurisdiction. It is very important for the business organisation as well as for the employee
of the company to generate some income from the business they have been doping so far. When
the income is not being generated in the company in their home country then it became

impossible for the business organisation to incurred any kind of profit and being a business
organisation profit is considered as prime most work of the organisation(Kelley, Shenkar, 2013.).
The hurdle for not generating any kind of income in the company because of lacking in the
treaties(Lee, 2013.). it has been seen that some of the countries does not have tax treaty with the
source from which the organisation receives income can establish an operation in a second
source country which might possess of any kind of favourable to. treaty and will help the
company to generate any kind of profits or income. Another reason for opting tax treaty of any
other country is to minimize any kind of tax liability which may occur to company with home
country(Hayakawa, Kimura, Lee, 2013.). A tax liability can be referred to there are many kind of
taxes which has been imposed by the authorities, may include federal stare or local government.
When a taxable event occur then the taxpayer have a duty for the payment of tax that is liability
shall fall on to the parties to to calculate a tax and to pay it(Wild,Wild, Han, 2014.). The tax
payer may adjust the liability for the estimated for estimated tax payments, tax credits and others
items to compute the amount of taxes currently due and unpaid. The most common type of
example which has been seen in the context to tax liability is taxpayer have the liability of tax on
the earned income. For an example a taxpayer has earned a total income of 50.000 dollar and the
federal tax which is being applied on the earning is 20% which is equal to payment of 10,000
dollar as tax to the computing body(Ibrahim, Dahie, 2016.).
The case which has been filled on the context to tax liability on an international level is
Caterpillar v. Comm'r and the rule of law in international Tax. It has been seen in this case that a
petition has been filed in this case by caterpillar Inc. for redetermination of income tax
deficiencies from the IRS's allocation of royalty income to it from its Belgium and French
subsidiaries.
Payment of the council tax has been considered as one of the important activity for the taxpayers
but in the case of R(nicholson) v. Tottenham Magistrates and Haringey LBC [2015] EWHC
1252 it has been found that no council tax has been paid by the party.
Treaty shopping is considered as one of the serious kind of problem for the international
investment law as half of the economy of a country is generated by the activities which is being
carried out by the business organisation(Chen, Ding, Xu, 2014.). Even the market of a particular
country is being governed by the the enterprises because they are helpful regulating the selling
and buying of goods and services and such selling and buying will help in generating economy

but due to no tax policies in the home country, it bind or force any business organisation to
make an agreement or the treaty with any other country where tax treaties are being present.
Because of several treaty shopping is became impossible for the home country to generate any
kind of income by which international investment law is getting effected. Because not every
country possess the power to implement laws related to investment at international level.
International investment law shall comprises of treaties and customary law(Wang, Wang, Liang,
2016.). It shall also consist of policies which are established for public, and there Is private
dispute resolution and when not all the countries were able to establish treaty shopping then the
liability or the burdened to carry out various tax treaty fall on to one single by which chaos is
created in the company and not not situation be governed by the international investment
law(Burgenmeier, Mucchielli, 2013.). As present in the scenario that globalisation is being
prevailing in the countries very much, due to the presence of globalisation there are many
companies which are looking forward for to enter into the market for carrying out the business
activities but it has been seen that due to the presence of globalisation many enterprises are
establishing dominance in the market. A dominance in the market can be explained as the power
of any company or the business organisation to influence the other market and the power to
influence others. It has been clearly observed that there are many enterprises who are looking
forwards to establish the dominant position which is even considered as an illegal practice in the
international law of competition. Due to globalisation there are many changes adopted by the
company as well as there are many technologies which has been adopted by company as well.
Establishing a dominant position is considered as one of the illegal activity which is being
carried out by the company. But in the shadow of earning profits and due establishing a
competition in the market many organisation of business have motive to establish a dominant
position in the market. Establishing a dominant position in the market by any enterprise is
considered as very serious illegal activity done by many companies. The case which has been
addressed on establishing a dominant position in the market by any enterprise is Huaewi
Technologies Co. Ltd v Zte Corp & ZTE Deutschland GmbH. It has been held in this case that
there was a breach of patent which has resulted into establishing dominant position in the market
by company. Due to such dominance which has been established by various kinds of companies
in the market it became impossible to address Any problem which is coming in the way making
treaty shopping(Mansoor, 2016.). As it has been discussed above, a treaty shopping is when the

company wants to establish any kind of organisation or to carry out any kind of business in the
other company due to the absence of tax treaty then it shall referred to treaty shopping but it has
been observed that there are many difficulties which is being faced with the application of
international law investment. One of the major difficulty is that when a company establish any
kind of dominant position in the market it became impossible for the other company to address
treaty shopping for country of any other country(Falk, 2016.). It has been seen that while making
a treaty shopping by an organisation there are many kinds of contract made by the company for
an example if any company wants to carry out a treaty shopping for enjoying the tax benefits or
for the tax liability of just one another country then it will make a bilateral contract. A bilateral
contract in accordance to law is when a contract is being formed between 2 states only. But there
are many companies which are interested in making a treaty shopping with more than one
country that is it may be a possibility that one company wants to attain benefits of tax from more
then one company, in such condition a unilateral contract is formed between the countries but
due to the globalisation and dominance of certain enterprise in the market it became impossible
to address treaty shopping by the which international investment law consist of all the unilateral
or bilateral contracts related to treaty shopping get effected. These problems can be addressed
with the application of law related to investment at the international level but due to the
dominance of the Company prevailing in the market at international level it became impossible
to address all the unilateral and bilateral contract made between the companies of the
international market. For example A is the company which deals with the making of solar chips
for many electronic gadgets. The company is established in Vietnam. There are nor tax policies
were present in the country by which no tax liability is generated. Looking to the scenario A
made a plan to establish his own business by making a contract to B which is a company in UK.
Such decision has been taken by A because there are many tax policies established in the UK by
which many benefits can occur to A but began to establish its company, it has observed by A that
C was already in the position of dominance by which a was not able to establish and form any
kind of treaty shopping. It can be clearly observed by the situation that when a dominant position
has been established by any of the company the it became difficult for other company to
establish its business in the market. Such problems can also addressed by the application of
international law of investment but due to globalisation it became difficult to address the same.
Treaty shopping is one of the important element for the regulation of market activities. There are

many companies which are looking forward to make a treaty with other country to attain the
benefits of tax and to incurred the tax liability. It is well known fact that only few countries have
the attractive tax policies by which other companies are looking forward to make a treaty
shopping. It is very important for the law established in context to international investment to
assess and to analysis all the barriers and the hurdles which is coming in between the application
of the tax treaty. There are many remedies which are available in the law to rectify the any
difficulties and in case of dominance and globalisation it is very important to use certain laws by
the body so that such serious problems can be addressed and there shall be no serious problem
appeared on the international investment law.
CONCLUSION
It can be concluded from the above discussion that there are many kind of treaties which
has been signed between the company of different countries and such treaties are made for the
benefits of the business organisation so that they shall be able to incurred profits out of those
treaty. One of the important aspect which is being covered by the discussion is of treaty shopping
which generally refers to a situation when a person, who is resident in the home country and who
earns income or capital gains from another country to be known as source country, is able to
benefit from a tax treaty which is being made between the source country and yet another
country. The further discussion on the topic states that there are many difficulties which has been
faced by the international investment law for treaty shopping as dominance and globlisation is
taking place.

REFERENCES
Books and Journals
Allan, J.A. ed., 2012. Handbook of land and water grabs in Africa: Foreign direct investment
and food and water security. Routledge.
Burgenmeier, B. and Mucchielli, J.L. eds., 2013. Multinationals and Europe 1992 (RLE
International Business): Strategies for the Future. Routledge.
Büthe, T. and Milner, H.V., 2014. Foreign direct investment and institutional diversity in trade
agreements: Credibility, commitment, and economic flows in the developing world, 1971–2007.
World Politics, 66(01), pp.88-122.
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014.
International business. Pearson Australia.
Chen, C.J., Ding, Y. and Xu, B., 2014. Convergence of accounting standards and foreign direct
investment. The International Journal of Accounting, 49(1), pp.53-86.
Fajgelbaum, P., Grossman, G.M. and Helpman, E., 2014. A Linder hypothesis for foreign direct
investment. The Review of Economic Studies, p.rdu027.
Falk, M., 2016. A gravity model of foreign direct investment in the hospitality industry. Tourism
Management, 55, pp.225-237.
Farole, T. and Winkler, D. eds., 2014. Making foreign direct investment work for Sub-Saharan
Africa: local spillovers and competitiveness in global value chains. World Bank Publications.
García, F., Jin, B. and Salomon, R., 2013. Does inward foreign direct investment improve the
innovative performance of local firms?. Research Policy, 42(1), pp.231-244.
Hayakawa, K., Kimura, F. and Lee, H.H., 2013. How does country risk matter for foreign direct
investment?. The Developing Economies, 51(1), pp.60-78.
Ibrahim, A.A. and Dahie, A.M., 2016. The effect of Foreign Direct Investment, Foreign Aid and
Domestic Investment on Economic Growth: Evidence from Somalia. Imperial Journal of
Interdisciplinary Research, 2(12).
Javorcik, B.S., 2016. Harnessing foreign direct investment to boost economic growth. Boosting
European Competitiveness: The Role of CESEE Countries, p.7.
Kelley, L. and Shenkar, O., 2013. International business in China. Routledge.

Lall, S. and Narula, R. eds., 2013. Understanding FDI-assisted economic development.
Routledge.
Lee, J.W., 2013. The contribution of foreign direct investment to clean energy use, carbon
emissions and economic growth. Energy Policy, 55, pp.483-489.
Mansoor, A., 2016. Impact of Foreign Direct Investment on Indian Economy. We'Ken-
International Journal of Basic and Applied Sciences, 1(1), pp.34-38.
Marinova, S., Child, J. and Marinov, M., 2015. The Role of Home Governments in Outward
Foreign Direct Investment. In Institutional Impacts on Firm Internationalization (pp. 173-189).
Palgrave Macmillan UK.
Mathur, A. and Singh, K., 2013. Foreign direct investment, corruption and democracy. Applied
Economics, 45(8), pp.991-1002.
Moosa, I., 2016. Foreign direct investment: theory, evidence and practice. Springer.
Moran, T.H., 2012. Foreign Direct Investment. John Wiley & Sons, Ltd.
Olney, W.W., 2013. A race to the bottom? Employment protection and foreign direct investment.
Journal of International Economics, 91(2), pp.191-203.
Wang, K.C.A., Wang, Y.J. and Liang, W.J., 2016. Intellectual property rights, international
licensing and foreign direct investment. Asia-Pacific Journal of Accounting & Economics, pp.1-
15.
Wild, J., Wild, K.L. and Han, J.C., 2014. International business. Pearson Education Limited.
Wu, J., Ma, Z. and Zhuo, S., 2016. Enhancing national innovative capacity: The impact of high-
tech international trade and inward foreign direct investment. International Business Review.
Online
Springer International. 2016. [Online]. Available through.
http://www.springer.com/la/book/9788132218975. Accessed on 17th December 2016.
Peterson Institute for International Economics. 2016. [Online]. Available through.
http://bookstore.piie.com/book-store/53.html. Accessed on 17th December 2016.