Literature Review: FDI, Political Instability, and Developing Nations

This report presents a comprehensive literature review focusing on the role and impact of political instability in attracting Foreign Direct Investment (FDI) to developing countries. It begins by defining FDI and exploring its benefits, including economic growth, technology transfer, and improvements in labor resources. The review then delves into key theories of FDI, such as the monopolistic advantage theory, oligopoly theory, product life cycle model, and Dunning's eclectic paradigm, critically evaluating the latter. Determinants of FDI are examined, including market size, openness, labor costs, infrastructure, and institutional factors. The report also discusses various modes of entry for foreign firms and promotional strategies to attract FDI. A significant portion is dedicated to a case study of Yemen, analyzing its economy, FDI inflows, and the impact of political instability on investment. The research methodology, including research design, approach, philosophy, strategy, techniques, data collection, and analysis methods, is thoroughly explained. The report concludes with a discussion of research limitations and a summary of findings, providing a valuable resource for understanding the complex relationship between political stability and FDI in developing nations.

Running head: LITERATURE REVIEW & METHODOLOGY
Literature review and methodology
Name of the student:
Name of the university:
Author note:

1LITERATURE REVIEW AND METHODOLOGY
Table of Contents
Chapter 2: LITERATURE REVIEW..................................................................................................................2
2.1 FDIs in Developing Countries................................................................................................2
2.1.1 Positive Benefits................................................................................................................3
2.2 Theories of Foreign Direct Investment.................................................................................4
2.2.1 Critical Evaluation of Dunning's Eclectic Paradigm............................................................5
2.3 Determinants of FDI..............................................................................................................................6
2.3.1 Size of the Market.............................................................................................................6
2.3.2 Openness...........................................................................................................................6
2.3.3 Labour Expenses and Production......................................................................................7
2.3.4 Infrastructure.................................................................................................................... 7
2.3.5 Institutes........................................................................................................................... 7
2.4 Modes of entry of Foreign firms into developing countries..................................................................8
2.4.1 Greenfield (a wholly-owned subsidiary)............................................................................8
2.4.2 Acquisitions and partial acquisition(PA)............................................................................9
2.4.3 Joint venture (JV), Strategic Alliance, licensing and franchising........................................9
2.4.5 Exporting......................................................................................................................... 10
2.5 Promotional strategies to attract FDI..................................................................................................11
2.5.1 Direct policy advice to governments...............................................................................12
2.5.2 Policy support for governments......................................................................................12
2.5.3 Assistance to investors....................................................................................................13
2.5.4 Financing for investors....................................................................................................13
2.6 Remittances and Business Links.........................................................................................14
Chapter 3. Yemen’s Case Study.................................................................................................................14
3.1 Yemens’s Economy.............................................................................................................14
3.2 FDI in Yemen and FDI Inflow.............................................................................................. 15
3.3 Political Environment......................................................................................................... 16
3.3.1 Fragile States Index......................................................................................................... 16

2LITERATURE REVIEW AND METHODOLOGY
3.3.2 State Legitimacy (Political indicators)..............................................................................16
3.3.3 Public Services.................................................................................................................17
3.3.4 Human Rights and Rule of Law........................................................................................17
3.3.5 Security Apparatus..........................................................................................................18
3.3.6 Factionalised Elites..........................................................................................................18
3.3.7 External Intervention...................................................................................................... 19
4.0 Research methodology........................................................................................................................19
4.1 Research design and Research Approach...........................................................................20
4.1.1 Justification of the Research design.............................................................................21
4.1.2 Justification of Research approach..............................................................................22
4.2 Research Philosophy.......................................................................................................... 22
4.2.1 Justification of the chosen research philosophy...........................................................23
4.3 Research Strategy...............................................................................................................23
4.4 Research techniques and ethics.........................................................................................24
4.5 Data Collection Method..................................................................................................... 25
4.6 Study Population, Sample population and Sample techniques..........................................26
4.7 Data Analysis...................................................................................................................... 27
4.8 Limitations of Research......................................................................................................27
4.9 Summary............................................................................................................................ 29
References:.............................................................................................................................. 30

3LITERATURE REVIEW AND METHODOLOGY
Chapter 2: LITERATURE REVIEW
This literature review is done to evaluate the theories, which focus on the topic that is
‘THE ROLE AND IMPACT OF POLITICAL INSTABILITY IN ATTRACTING FDI TO
DEVELOPING COUNTRIES’. This literature review will analyze, discuss, explore and state
the importance of the given topic.
2.1 FDIs in Developing Countries
Foreign direct investment or FDI is the investment that an individual or a business
organization makes by having interest in other country’s business aspects. This investment is
made in the form of initiating business operation or advantages like ownership in the business
organization of the particular country. It is also the injecting and utilizing of foreign funds in a
business organization, which operates in another country (Decreuse and Maarek 2015). In the
developed countries, increase in FDI leads to the increase in the economic growth rates.
However, it is also seen that the development experienced by the financial markets and by the
education system of a developed country has high affect on FDI’s impact on their economic
growth. As FDI is a capital transaction it is not kept in recorded in GDP however, the country
that takes the initiative of the investment records it in the GDP. FDI is a form of cash flow but
when the investment done is anyhow recalled, there is an advantage of getting back the money.
Business investment is the firsts step towards the finalizing the economic growth of a country.
The investment curve relies on the expectations of change in capital stock, level of the economy,
capital, utilizing of the capital, cost of the goods and the technological change. In developed
countries the business organizations rely on FDI as it supplements their savings by inflowing of
the capital and promotion of the economic development of a country. FDI is capable of providing

4LITERATURE REVIEW AND METHODOLOGY
high stimulus to enhance the economic growth of the country and it is more than capital as it is
seen to be offering chance to avail the upgraded technologies.
2.1.1 Positive Benefits
The benefits of FDI has many aspects like the reduction of gap and leading to domestic
savings, determining the payment balance, improving the production technology, transferring of
technology, economic growth and the transportability of the labor resources. A huge number of
developing countries have adapted changes in their FDI regime so that they can follow the
required policy for increasing the investment. FDI has positive benefits in the technology
spillovers, support in capital formation, enhancing the business environment, trade integration of
the country and improving the development strategy of the organization (Decreuse and Maarek
2015). FDI does not only have impact on the economic growth but it improves the social and
environmental by the help of a clearer technological aspect to incorporate the policies. Though it
is difficult to evaluate the economic impact of FDI still it is marked as the key tool to alleviate
poverty in the economy of the countries. the positive benefits of FDI is through the positive
determination of the economy, which is done by the supplying of the required capital, managing
the technology and the sources, this transfer of resource stimulates the economic growth of the
country. FDI also determines economic growth in a country by adding the domestic investments.
The integration in the global market contributes to the corporate governance and legal
acquisitions (Anyanwu, Yaméogo and Ali 2016). However, technology plays a vital role in the
progress of the process of economic growth of a country. Technology helps in incorporating
production process. However, the technologies, which are transferred to the other countries and
has contact with FDI is modern.

5LITERATURE REVIEW AND METHODOLOGY
2.2 Theories of Foreign Direct Investment
The common theories of FDI are:
a. Theory of monopolistic advantage: this is described with the help of two aspects; one is the
horizontal foreign investment and the other one is the superior knowledge. This theory
discusses that the firm, which is investing has monopolistic approach against the other local
firms and they enjoy that with the help of the superior knowledge along with the scale of
economy.
b. Oligopoly theory of advantage: the vertical FDI is discussed with the help of the oligopoly
theory. The big business organization dominates the global market in terms of 10 points of
mistake. The organizations seem to retain their monopolistic aspect by sustaining the barriers
of entrance in the market and they deny allowing new competitors in the market and focusing
only on the growth-maximizing factor. Thus, it can be said that the oligopoly theory is the
defensive behavior of the investor of any multifunctional business organization.
c. Product life cycle model: this theory explains both the trading and the FDI, there is a time
dimension added to the monopolistic theory, and this model will explain the shift of the
organization exporting to the foreign direct investment. This model states that once the
product is adequate enough to grow, the business organization invest the money abroad and
starts exporting from there to the global market.
d. Eclectic theory: dunning proposed this theory and this theory provides a clear approach of
FDI. This theory is dependent on three variable, which are; country specific, company
specific internalisation and relation between trade and FDI.

6LITERATURE REVIEW AND METHODOLOGY
2.2.1 Critical Evaluation of Dunning's Eclectic Paradigm
Dunning propounded the theory of FDI by highlighting all the organizational issues that
the business organizations face in case of foreign production. The country- specific variable of
this paradigm lies on the geographical and political environment, the framework of the
government along with the taxation and fiscal policy, the cost of production and transportation,
the cultural environment and the advantages from the development and research objectives. The
company specific variable depends on the managerial effectiveness, the structure, the process
and the technological advantage (Dunning 2014). The internalization depends on the flexibility
and marketing capabilities of the organization. Under a global setting, the FDI is an engine that
drives an economy to reach the extent level of growth. The physical presence of a producer is
very important to maintain the substantial market while the organization is in a unimportant and
ineffective area. This is the development of the internalization theory, which provides ownership
advantages or the competitive advantages and helps the business organization to get involved in
the foreign direct investment. The research experts many times criticize the ideas that underlie in
the eclectic theory and they say that this theory is double counting. This theory identifies that the
activities of a business organization is dependable on many factors like the ownership gains, the
advantage of location and the incentive gains. This particular theory has resemblance to the
theoretical framework of the transaction cost. The ownership gains are divided into three classes,
first one signifies the market place benefits, second one highlight the benefits of the business
organization and the third one highlight the owners of the business organization. The advantages
of location answers the question of where the production is or going to take place. This states the
compatibility of some places more than the other does. The internationalism benefits mark the

7LITERATURE REVIEW AND METHODOLOGY
investing process of a business organization into a new country. This provides advantage to the
reduction of cost and protection of legal rights of a property (Dunning 2015).
2.3 Determinants of FDI
FDI is seen to have grown as a capital transfer form in the past few years. It is a tool that
is required for the integration of a country and helps in representing the capital investment of the
country (Das 2013). There are few determinants that resembles the incorporation of FDI in the
global market. It is important to have the knowledge of the determinants of FDI. The
determinants are discussed below:
2.3.1 Size of the Market
The size of the market is one of the most important determinant of FDI, which is
evaluated by GDP. The size of the market is the potential that provides its resemblance to the
horizontal GDP. The size of the market is pertinent on the countries that have high purchasing
market and helps the stakeholders to get high return for the investment that they did. The
marketplaces, which are big in size, get the economy advantage. Increase in the market place
guides the business organization to the FDI (Abdouli and Hammami 2017).
2.3.2 Openness
This is determined by the ratio of the import and export in GDP and this is utilized by the
business organization to determine the FDI. To be more precise, the extent of openness that a
country pursues plays a very vital role for describing the fact about how open, the FDI is and
whether it is a good option to invest. The investors who face thee trading limitations entail the
indirect trading patterns on a global basis. These have negative impacts on FDI leading a bad
impression (Mina 2017).

8LITERATURE REVIEW AND METHODOLOGY
2.3.3 Labour Expenses and Production
In the context of FDI, the countries who are having low qualified employees gets hold of
the global market as FDI tends to develop the economy of that particular country. Many studies
clearly state the fact that FDI has developed a positive relation to the industrial units of the labor
force. The countries that have high economy has less flow of foreign direct investment and the
countries that are less developed have negative relation between the level of income and the
foreign direct investment (Bahattab 2015).
2.3.4 Infrastructure
The infrastructure of FDI comprises of both railway and roadway network but studies
highlight that it must also comprise fields like accounting, campaign and social service. It is
clearly stated that poor infrastructure will be a hurdle in the process of FDI. The countries who
are under developed face the problem of poor infrastructure and the developed countries use FDI
as a severe means of investment and capital transfer having the leading infrastructure. The
supremacy in the infrastructure of a country influences positively on the economic growth
resulting to more investments and business opportunities. Thus, it brings high cash flow in the
country and makes sure that the growth of the organizational activity is very improved. The
roadways and railways of the developed countries is a major support to the investment progress
and helps the investors to invest without adapting any change of location (de Haan 2014).
2.3.5 Institutes
The institute is very important determinant of FDI for the developed countries. The
countries require a proper institution because unfavorable sources increase the possibility of
expropriation and these results to less investment. The adverse quality of institutes lessens the
chance of corruption in the FDI. Development of the political stability gets affected by the

9LITERATURE REVIEW AND METHODOLOGY
corruption and thus hinders the FDI practices (Al-Jaifi, Abdullah and Regupathi 2016). The
institutions of a country are the set of formal and informal rules that encourage the practice of
FDI in the country. This is a term, which is helpful to reduce the cost of business operations for
the investors. It is the rule of game that influences the business society. Institutions are the
framework that encompasses the constraints that the humans face and shapes up the economic
regard of the country. Past researchers have already identified three aspects that encourage the
FDI of the country. The three aspects are formal rules, informal rules, enforcement. The formal
or written rules are the ones that govern the other matters of the society. The informal rules
govern the code of conduct of the country and the enforcement is the framework that helps in
evaluating whether the rules are proper or improper. Economy like Yemen, needs to update the
policies in order to get hold of the market as well. The institution of a country covers the entire
framework including the administration and bureaucracy and is regulated by economic and social
institutions. The economic institution takes care of the tax and property laws and this has impact
on the political life leading to political instability in the country (Peterson 2016).
2.4 Modes of entry of Foreign firms into developing countries.
2.4.1 Greenfield (a wholly-owned subsidiary).
Greenfield investment is one of the major components for investing in the foreign market
entry modes. In this method, the parent company has to start their business operations from the
ground up mode (Harms and Méon 2012). The investors can build up new production facilities
along with building new distribution hubs, offices for the employees and the quarters for their
living. The emerging countries tend to invite the big organizations to invest in their countries
through tax breaks, subsidies and other lucrative incentives. In the short term perspectives, this

10LITERATURE REVIEW AND METHODOLOGY
can tend to give them benefits of corporate tax concessions but in the long term process the local
human capital can lead them to economic benefits.
2.4.2 Acquisitions and partial acquisition(PA)
Acquisitions and partial acquisitions are certain instruments for dominating the market in
a foreign country for a firm. The meaning of acquisition is that an already existing local firm has
a full ownership control in any foreign location around the world. Another form of acquisitions is
that partial acquisitions that is also known as PA (Contractor et al. 2014). This refers to the fact
that when a foreign investor tries to grab an equity share in an existing organization without
gaining the full equity share of the same. The power for an organizational change is very limited
in this strategy because they lack in this arrangement is the full control over the organization.
There are different forms of PA (Contractor et al. 2014). Some of them are the investor can get
the management control and thus influencing the strategic management, they can work as
financial investors or as venture capitalists without getting the direct control.
2.4.3 Joint venture (JV), Strategic Alliance, licensing and franchising
The joint investment means the request to share the stock of a company with the
partner company (Killing 2012). The partners have to share their equity, risks and management
problems that are involved in the process. The advantages of this process involve the saving of
the capital and lessen the restricted resources in the business. Knowledge and expertise about the
local area is extremely important in this case.
Strategic alliance refers to the process of sharing the resources, capabilities and expertise
with the partnering firms so that they both can have mutual benefits and share the rewards of the

11LITERATURE REVIEW AND METHODOLOGY
business. This can be operated in various methods within the international market (Cartwright
and Cooper 2012).
Licensing method is lesser at risk in the business operations as a foreign market entry
mode. In this method the things that can be used are patent and trademark rights, business
operation copyrights and others. The licensor has to paid the royalties as per the business volume
(Fan, Jun and Wolfstetter 2013).
Franchising is a complex organizational framework that says that the decentralized
framework of units have to be taken under one contractual agreement so that competitive
advantage can be gained by the local partners in the foreign locations. Licensing and franchising
are more or less similar in their approach but franchising is more direct in its approach to the
control and development of the business operations for the organizations in the business markets.
This can include FDI modes and the investors can be benefitted from this (Fan, Jun and
Wolfstetter 2013).
2.4.5 Exporting
There are two forms of exporting. These are direct exporting and indirect
exporting. The direct exporting method allows the foreign organizations to to invest directly on
the foreign customers in the target markets (Laufs and Schwens 2014). As a part of this strategy,
the firms have to select one or two sales agents to serve for them in their business operations. In
the indirect exporting method, the firms need to employ an intermediary agent instead of agents
who will cater to the deal with foreign customers in a direct way.

12LITERATURE REVIEW AND METHODOLOGY
2.5 Promotional strategies to attract FDI
Many policy makers have considered that foreign direct investment is a part of economic
development. Foreign direct investment is marked as an important tool that helps in building
economy. Promotion of the strategies of FDI is a tool that helps in integrating the world
economy and allowing the market competition on a global basis as well as helps the countries to
have economic growth (Scully 2014). Political support is another important aspect of FDI but it
to some extent ignores the importance of the research that identifies the connection between the
development and foreign direct investment. In the host country, FDI plays a major role and has
positive impact on its economy. The policies that are incorporated depend on the country,
company, cost balance and the benefits that the policies provide for the stakeholders. The aspects
that FDI focuses are macroeconomic one and by hiding the beneficial facts, it pushes the other
parties towards the negative impacts of FDI (Musibah, Shahzad and Fadzil 2015). There are
many evaluations done against the negative impacts of FDI. Many medium sized companies
have already undertaken scrutiny to prevent the negative impact of the competition due to
increasing investment. The host countries will attract the foreign direct investment by enhancing
the financial capabilities and increasing the human resources within the business organization.
The support that FDI provides to the companies offer them the realization that if FDI is not
present then they will have to face severe consequences. The promotional strategies for FDI
incorporated by the international business are combined with the national levels to make sure
that the private sector remains protected under the global market. It is impossible to enforce and
affect the investment policy by the investors because they are not in control of the policy or the
strategies. There is a need of promotional strategies to be upgraded by the Yemen economy so
that it can integrate well in the international market and place itself in the global market. These

13LITERATURE REVIEW AND METHODOLOGY
are required by the Yemen economy because the stability in politics is very much required for
attracting the FDI and influence the country’s GDP growth (Blake and Lawless 2016).
2.5.1 Direct policy advice to governments
This policy attracts the government of the investing countries to develop and incorporate
many foreign policies. This will include the laws of FDI as legalized by the business
organization (Badeeb and Lean 2017). This policy also includes the incentive support to the
investing countries at the time of investment. These policies are created to make sure that the
investing area covers a policy covered zone so that it can take into consideration the competition
within the market, the tax laws, the corporate governance and its responsibility, the integrity of
the market. This is also to maintain the development of the human resources, communications
and communal governance (Lackner 2014).
2.5.2 Policy support for governments
The direct policy advice support in global basis is dealt in the policy support for
government term. This support offers the government in determining the investment policies as
well as the support for undertaking FDI. This process facilitates the incorporation of the
investment process which are suitable for the country’s governing body in case they support the
business organization that are affected by the investing organizations. The political instability of
Yemen economy is unfair as the economy is seen to have undergone the highest rate of GDP and
hence it experiences thee instability from the year of 2014 (Laub 2016). The policy support
system will largely have positive impact on the FDI inflows of the economy. The research
conducted on the Yemen economy clearly highlights the fact that the country’s economic growth
has undergone a massive negative impact in the year of 2015 due to the less FDI inflow on the

14LITERATURE REVIEW AND METHODOLOGY
past years. Thus, this policy support system will seem to have a positive impact and result in
changing graph of the Yemen economy and its inflow of FDI (Rugh 2015).
2.5.3 Assistance to investors
Many instruments are present in global market that assists the investors for exploring
their investments in the foreign direct investment. There are many sources who will help the
investors to invest in a proper way. They can avail the help from the sources and get a clear
approach for the FDI activity (Berberoglu 2016). As seen in the recent research the FDI inflow in
Yemen has dropped down because of their inner market conflicts within the country and due to
the less knowledge that the business organization has regarding FDI. These have disrupted the
entire foreign direct investment as the foreign countries are not willing enough to invest in these
turbulent political situations of Yemen and due to this the country is facing an enormous
downfall in the economic growth. Hence, investors of Yemen need to have proper idea about the
FDI process and mark how it can be useful to increase the economic growth of Yemen
(Nonneman 2015).
2.5.4 Financing for investors
The financing of the investors is a very important tool that helps in determining the FDI
in many countries but in the current infrastructure of Yemen, it is very unjustified to say that this
country has the same facility. Yemen has least number of interested investors who have the
intention to help the economy to grow. While investing in Yemen it is obvious that the sources
are limited and thus the government can take the desired help from the other countries and try to
initiate the process of FDI. The adapting of promotional strategies may be a big help to attract
more investors in these process and increase the economic growth of Yemen (Lane and Milesi-
Ferretti 2017).

15LITERATURE REVIEW AND METHODOLOGY
2.6 Remittances and Business Links
The developed countries have broad idea about the incorporation and utilization of FDI
but for Yemen it still needs to develop and manage the internal conflicts of the market so that
they can experience the highest rate of economic growth and GDP. The remittances are very
much required in the context of Yemen to develop and improve the financial condition of the
country. Yemen needs to create proper business links with countries that are interested in
investment. Yemen also needs to update their infrastructure so that they can have investors
wanting to invest in their market (Burrowes 2016).
Chapter 3. Yemen’s Case Study
3.1 Yemens’s Economy
The publicly available economics of the country of Yemen has been deteriorating very
recently. The official currency of the country is Yemeni Riyal. The civil conflict within the
country has almost dashed the economy of the country in many ways. The economy of the
country is not sustainable yet (Berkmen et al. 2012). The humanitarian crisis has been developed
because of this ongoing civil conflict. As a result of this, the oil and gas production of the
country has suffered a huge blow in the recent times. The population of this country has been
recorded as 28.3 million where the unemployment rate among the youth is around 15%. The
GDP of the country is $75.5 and the growth has been thwarted down at 28.1% in the recent time.
The inflation rate is 30% in the country as this is one of the least developed countries of the
Arabian contingent. The economy of this country considered as very fragile. The per capita
income for the people of this country is $2671. Poverty is increasing on a constant basis in this
country (Berkmen et al. 2012).

16LITERATURE REVIEW AND METHODOLOGY
3.2 FDI in Yemen and FDI Inflow
The current FDI inflow in Yemen has dropped down quite a bit as it has reached down at
$-1191.0 million in the recent times as a result of their inner conflicts within the country. These
have disrupted the entire foreign direct investment as the foreign countries are not willing
enough to invest in these turbulent political situations (Araujo et al. 2015). The amount of
foreign direct investment has decreased to a low scale within the country. This decrease has
dropped down to $1191.o million in the year 2015. The average FDI of this country has stayed
around $23.96 million from 1990 to 2015. The all time low FDI amount was recorded in 2014
when it was decreased to $-1787 million (Araujo et al. 2015).
Yemen FDI inflow. Source: (Araujo et al. 2015).

17LITERATURE REVIEW AND METHODOLOGY
3.3 Political Environment
3.3.1 Fragile States Index
Yemen can surely be considered as a fragile state since its inner peace within the country
has been disrupted completely because of the acts of terrorism that have been taking place
incessantly. The Islamic terrorism activist parties like Al Qaeda and Islamic State have shattered
the peace of the country (Bhuta 2012). This sets the fact that they have launched numerous
terrorist activities that have torn the peace of the country all the way. The reigning political
parties have not been able to cope up with this terror. This is why they can be called a politically
fragile state (Bhuta 2012).
Fragile State Index regarding Yemen.
3.3.2 State Legitimacy (Political indicators)
The political conditions in Yemen suggest that it has been dominated by the Islamic
activists and the political unrest that has been prevailing in this country have thus far gone
beyond control. There is no political stability in the country, the parties are fighting among
themselves and the unruliness has reached its limit (Al-Dawsari 2012). This has enhanced the

18LITERATURE REVIEW AND METHODOLOGY
level of corruption in the country. This is the reason the foreign investors are not willing to invest
here.
Corruption Perception Index 2016
3.3.3 Public Services
The roper and impressive public services are not present in Yemen that is why the
inhabitants of the country are not t all in safe hands. The terror attacks and the violent activities
are increasing and the government is yet to take any positive steps about it (Eide and Ingstad
2017). Instead, they are getting involved in corrupt activities all around the world. The
government is unable to provide a safe living environment to its people.
3.3.4 Human Rights and Rule of Law
The condition of the human rights is not at all in the safe place. The condition has been
deteriorating ever since the time the indulgence in terrorist activities have increased. The women
were modeled to given equal rights by some legal frameworks by the government but the women
are still facing the darkness of illiteracy in some remote areas of the country (Al-Dawsari 2012).

19LITERATURE REVIEW AND METHODOLOGY
The curse of genital mutilation and excision are still very common in some of the areas. This
means that the people are not still safe within the territory of the country itself. Though, there are
laws to protect the human beings, they are not properly implemented in reality. In the country,
the legal assistance is provided in case of the human rights violations. The government is looking
to make partnerships with the local organizations to secure human rights (Freeman 2017).
3.3.5 Security Apparatus
Yemen has become such an easy target for the terrorist groups within the region of the
Arabian gulf states. As Yemen was set up as a free country, democratic pluralism had been
adopted that was based on the Shoura principles of the values and objectives of Islamic Shan.
There was a shift from the banditry and kidnapping operations to the newly designed terrorist
operations. So, it is clear that the country needs a huge security control system to save the lives
of the innocent people (Temil 2014).
3.3.6 Factionalised Elites
If the elite forces and the ruling body of the country are fragmented, it causes great
inconvenience among the people of the country. Such a condition has been faced by the country
of Yemen for long years (Al-Dawsari 2012). Yemen has been in the leading position who have
been torn by the war between the Saudi Arabia-led coalition and the Houthis and allied forces.
This has caused a sense of fear among the minds of the countrymen. The United Nations have
lately reported lately that the country may be facing total collapse in the coming years as millions
of people are under starvation because of the lack of food and good living facilities (Temil
2014).

20LITERATURE REVIEW AND METHODOLOGY
3.3.7 External Intervention
There have been a lot of cases of external intervention in Yemen as the region has
become an easy target for the terrorists. The domestic turbulence has disturbed the peace of the
country and the militant groups like Al Qaeda, Houthis and the Islamic State. Iran has been a
constant support for the Houthis with arms, money and training (Temil 2014). This has
encouraged them to get within the Yemeni territories despite the accusations made by the
Yemeni Prime Minister Ali Abdullah Saleh. The accusation against Yemen is that they are
constantly indulged in corruption so the Zaidi Shia forces of Iran are trespassing into the Yemeni
territory (Al-Dawsari 2012).
4.0 Research methodology
The research methodology is a systematic process of the collection of the required
information and data from authentic sources. This chapter aspires to complete the research
method of this research project, collecting the data by the justified data collection method. The
term ‘Research Method’ refers to the procedure of the research which aims at the collection and
analyze of the data (Lewis 2015). Through the research methodology, the research objectives and
aims are satisfied with the findings of data. The researcher has collected the data from both the
primary and secondary sources. The researcher has interviewed four professionals for collecting
the necessary data from the research project. Other than the interviews, the researcher has also
collected data from the secondary data sources such as the literature on applying FDI on the
developing countries, data from all over the world on FDI and further development. The data
have been collected and evaluated with relation to the research objectives and aims. The scope of
the research has recognized that there is a huge impact of the current political instability on the
application of FDI in Yemen. It has also been identified that the political reasons are affecting

21LITERATURE REVIEW AND METHODOLOGY
the economic factors in Yemen; however the policy makers and the academics can add further
knowledge to the situation. Therefore, this research has contributed to the understanding of the
concerned factors which can hamper the further development of the economy in Yemen. This
research looks deep into the current political instability of Yemen which may reduce the chances
of FDI application in the country. This chapter aims in delivering the research methodology in
details for satisfying the objectives and aims that links to the research questions. Therefore, it has
allowed developing the stages which outlines the structure of the research for collecting the data
and guided the research towards the analysis of the collected information and data. The
researcher has collected both the primary and secondary data, the researcher has collected the
primary data from the conducted interview with four professionals through questionnaire and the
secondary data has been collected from the available literatures on the application of FDI.
4.1 Research design and Research Approach
Research design is the systematic process of classifying the entire research process in the
form of research methodology. The research design is comprised of three different kinds of
research designs: descriptive, exploratory and explanatory research designs (Creswell and Poth
2017). The Exploratory research design tends to aim in exploring the issue of research for
identifying the problems from different perspectives. However, this research design has several
drawbacks because this specific research design is not adequately successful for analyzing the
collected information and data in a proper method. On the other hand, the explanatory research
design can explain the research issue in a proper way (Lewis 2015). The explanatory research
design gives detailed information regarding both the negative and positive aspect of the
particular issue of research. In addition to that, the descriptive research design is entirely based
on the analysis of the issue of research on the basis of a case study. With the help of different

22LITERATURE REVIEW AND METHODOLOGY
case studies which are related to the particular topic and the research issue, the researcher
evaluated the collected information and data for giving a detailed description of the facts. As a
result to that analysis, the research issue can be described with both the negative and positive
impacts.
Research approach is the procedure of analyzing the collected information and data by
examining the issue of research from various approach or perspectives. The research approach is
primarily constituted of two significant kinds of research approach, such as, Inductive research
approach and Deductive research approach. The major purpose of deductive research approach is
to analyze the information and data on the basis of the existing models and theories (Sekaran and
Bougie 2016). On the other hand, the inductive research approach also focuses on examining the
collected information and data and creates a new theory (Yin 2013). As a result to that, the
researcher has chosen the Deductive research approach in order to evaluate the collected
information and data on the basis of existing models and theories.
4.1.1 Justification of the Research design
This specific research study has focused utilizing the descriptive research design in order
to conduct the whole research work. In this study, the research has focused in evaluating the
impact of political instability on Foreign Direct Investment (FDI) for Yemeni Economy. The FDI
or the Foreign Direct Investment is the investment which is done by an individual or a company
from one country for their business interests in any other country (Roberts 2015). In other words,
it can be said that, the investments are made for either obtaining the business assets in other
countries or for establishing the business operations in other country (Blonigen and Piger 2014).
The issue of FDI has been assessed in this research study on the basis of the country Yemen,
where there is a huge impact of the political factors on the economic establishments. Therefore,

23LITERATURE REVIEW AND METHODOLOGY
it has been previously observed that the descriptive research design is adequately successful for
examining all the collected information and data from different perspectives. The descriptive
research design is not much time consuming or much cost effective in the recent times, therefore
the researcher has used the descriptive research design for conducting this particular research
study.
4.1.2 Justification of Research approach
This specific research study has aimed in utilizing the deductive research approach. The
deductive research approach has been sufficiently successful for accomplishing the entire
research work by taking help from the existing models and theories and at the same time testing
the hypothesis. On the other hand, the Inductive research approach does not believe in testing the
existing models and theories; rather it creates a new theory. However the new theories may not
be relevant to the particular research study. Therefore, the study may also lose its flow of
research if the research considers the inductive research approach; along with that the research
study can be very much expensive as well. Therefore the researcher has chosen the deductive
research approach for this particular research study.
4.2 Research Philosophy
As stated by Knobe and Nichols (2013) the research philosophies provide the knowledge
and the dimension to the entire research study. The research philosophy is helpful in providing
the primary knowledge, facts and the concepts in order to conduct the entire research study in a
proper way. On the other hand, O’Gorman, Lochrie and Watson (2014) has also argued that there
are different philosophical aspects of the research topic, which helps the researcher to evaluate
different philosophical approaches of the research issue. There are three major kinds of research
philosophies, positivism, realism and post positivism. The positivism philosophy helps to

24LITERATURE REVIEW AND METHODOLOGY
evaluate the different philosophical aspects of the research utilizing the related philosophy. On
the other hand, the post positivism research philosophy helps the research in crosschecking the
specific data of the research (Yusuf, Adams and Dingley 2014). It mostly deals with the
previously done research study and presents knowledge on the data findings which have been
analyzed previously. The post positivism philosophy of the research study helps in maintaining
the clearness of the whole research study. Also, according to Orkin (2014) the realism
philosophy tend to deal with the objective reality of the specific study.
4.2.1 Justification of the chosen research philosophy
For the research study, the research has chosen post-positivism research philosophy for
completing the entire research with proper cross checked data with the evaluation of the data
with real data and information. This topic is mostly based on both he practical and theoretical
aspects of the particular research topic. The post positivism research philosophy has helped the
researcher to deal with the advanced aspects of the topic. The researcher has also been able to
conduct the study with the help of crosschecked and real information and data.
4.3 Research Strategy
The strategy of the research has been consisted of descriptive research purpose, deductive
approach and the post positivism research philosophy. In addition to that, both the primary and
secondary data has been collected by the researcher for analyzing the data in a qualitative data
analysis approach (Du, Behrensmeyer and Bobe 2014). The researcher has collected the primary
data from the conducted interview with four professionals, along with that, the secondary data
has been collected from the related literature, journals, books, blogs on the FDI investments in
the developing countries and the factors hindering this economic growth.

25LITERATURE REVIEW AND METHODOLOGY
Figure: Research Onion
Source: Du, Behrensmeyer and Bobe 2014
This research onion is a definite stricture which helps the researcher in defining the
methodology of the entire research study in a structured procedure. It has six layers where every
layer defines the research methodology in a suitable manner.
4.4 Research techniques and ethics
The researcher has evaluated the literature, books, websites which are based on the
implementation of foreign direct investments in the developing countries and has been conducted
aiming the research objectives. There are different kinds of political instabilities in Yemen which
has impacted the economic growth of the country. Therefore the research study has aimed to
comprehend the present political situation of the country and exploring the idea of political
instabilities in the country which can affect the FDI drive in Yemen. In addition to that, the
research study has also focused on understanding the current economic situation of Yemen

26LITERATURE REVIEW AND METHODOLOGY
which could contribute to the foreign direct investments. Along with that the research study will
also follow the technique to find out the link between the further economic growth of the country
and the ideas of foreign direct investments. Moreover, the research study will also evaluate the
available challenges and opportunities for the foreign companies in entering the country.
The research has also followed the primary ethical guidelines. This has allowed the
research study in demonstrating the integrity of the research. The researcher has also followed
the code of conduct and incorporated ethical guidelines. The researcher has maintained these
ethics for the entire research study. The privacy of the individuals participating in the research
study has also been maintained. There has been no data leaked other than utilizing them for the
academic purpose.
4.5 Data Collection Method
The data collection is a systemic process of gathering the essential information and data
from various reliable sources. The process of data collection can be considered as one of the
most efficient practical tools which provide the base to the entire research study. The data
collection method has two different kinds of methods, primary data collection and the secondary
data collection. The primary data collection technique mostly focuses on collecting the
significant information from the interviews, surveys, group discussions and several others. The
main purpose of availing the primary sources for the data collection is to receive the thorough
feedback from the concerned respondents. As a result to that, the researcher has the scope of
receiving the feedback from the participants. As stated by Weigold, Weigold and Russell (2013),
the data collection from the primary sources can also bring some difficulties to the research study
at the same time. The participants of the research study can be biased from any previous
incidents. On the other hand, the secondary data collection method relies on the related literature

27LITERATURE REVIEW AND METHODOLOGY
such as books, journals, websites, blogs etc. In this secondary data collection method, there is no
such option of providing biased information and data by the respondents. Therefore, it can be
said that, in these terms, the secondary data collection method is more reliable than the primary
data collection method. On contrary, Bohl et al. (2014) has stated that there are some negative
effects on the entire research study as well. In this particular technique, the feedback tends to get
delayed. Therefore the researcher cannot also avail the information and data from different
geographical areas as well.
In this research study, the researcher has conducted the data collection method from both
the primary and secondary sources. For the primary data collection method, the researcher has
conducted interviews with four professionals and collected their direct feedback on the political
instability and its impact on the foreign direct investments. All the professionals are related to the
economic field and they have also got experience in making the policies for the developing
countries. Other than that, the researcher also collected data from the secondary sources. For this
particular research study, the researcher has collected the secondary data from various sources
related to the foreign direct investments on the developing countries.
4.6 Study Population, Sample population and Sample techniques
The research study has intended in finding the impact and role of the political
unsteadiness in Yemen and how it can affect the FDI in the country. The study has also focused
the present situation of the foreign investments in Yemen and analyzed whether there is any
future potential of attracting more foreign investments in Yemen. The research study has also
recommended the potential strategies which can be adopted by the country regarding the
sustainable inflow of the FDI.

28LITERATURE REVIEW AND METHODOLOGY
For this research, the researcher has conducted interviews with four professionals. The
researcher has conducted interviews only with these four professionals as there was lack of time.
Four of the participants have contributed their knowledge to the research study. For the purpose
of this research study, it has identified, assessed, analyzed and evaluated the response of these
four professionals.
The sampling technique is the pertaining of a particular subset of the individuals from the
statistical population for understanding and evaluating the characteristics of the entire
population. The major reasons for the choice of the sampling techniques are the fast data
collection process, cost effectiveness, accuracy and quality of the collected data. There can be
two classifications of the sampling technique: probability and non probability sampling
techniques. For this research study, the researcher has chosen the non-probability sampling
technique as there are defined numbers of respondents in the research study. There are no such
random selection of the participants has been done in the entire research study.
4.7 Data Analysis
The data analysis technique is the method of analyzing the collected information and
data. There are two kinds of data analysis techniques: qualitative and qualitative data analysis
technique. For this research purpose, the researcher has chosen the qualitative data analysis
technique for analyzing the collected information from the professionals. The qualitative data
analysis process has been presented in this research study.
4.8 Limitations of Research
For conducting this research, the researcher has faced several limitations. The major
limitation that the researcher has faced is the budget. Other than that the researcher has also

29LITERATURE REVIEW AND METHODOLOGY
faced the time limitation. The researcher could have done more effectual research if he or she
could get more time for the completion of the specific research study.
Main activities/ stages Month
September
Month
October
Month
Novembe
r
Month
December
Month
Jan
Month
Feb
Topic Selection 
Data collection from
secondary sources
 
Framing layout of the
research

Literature review   
Formation of the research
Plan
 
Selection of the
Appropriate Research
Techniques
 
Primary data collection  
Analysis & Interpretation
of Data Collection
 
Conclusion of the Study 
Formation of Rough
Draft

Submission of Final
Work


30LITERATURE REVIEW AND METHODOLOGY
Figure 2: Gant Chart
Source: Author
4.9 Summary
This chapter has dealt with the data source for the research, analysis technique, research
approach and the research philosophies.

31LITERATURE REVIEW AND METHODOLOGY
References:
Abdouli, M. and Hammami, S., 2017. Economic growth, FDI inflows and their impact on the
environment: an empirical study for the MENA countries. Quality & Quantity, 51(1), pp.121-
146.
Al-Dawsari, N., 2012. Tribal governance and stability in Yemen (Vol. 24). Washington:
Carnegie Endowment for International Peace.
Al-Jaifi, H.A.A., Abdullah, N.A.H. and Regupathi, A., 2016. Risks and Foreign Direct
Investment Inflows: Evidence from Yemen. Jurnal Pengurusan (UKM Journal of
Management), 46.
Alsadiq, A., 2013. Outward foreign direct investment and domestic investment: The case of
developing countries.
Anyanwu, J.C., Yaméogo, N.D. and Ali, M.S.B., 2016. FDI in the Middle Eastern and North
African Countries. In Economic Development in the Middle East and North Africa (pp. 197-216).
Palgrave Macmillan US.
Araujo, J.D., David, A.C., Van Hombeeck, C. and Papageorgiou, C., 2015. Non-FDI Capital
Inflows in Low-Income Developing Countries: Catching the Wave?.
Arslan, C., Dumont, J.C., Kone, Z., Moullan, Y., Ozden, C., Parsons, C. and Xenogiani, T.,
2015. A new profile of migrants in the aftermath of the recent economic crisis.
Badeeb, R.A. and Lean, H.H., 2017. Financial Development, Oil Dependence and Economic
Growth: Evidence from the Republic of Yemen. Studies in Economics and Finance, 34(2).

32LITERATURE REVIEW AND METHODOLOGY
Bahattab, A.S.A., 2015. The impact of foreign capital inflows on economic growth of Yemen:
Does institutional factors matter? (Doctoral dissertation, Universiti Utara Malaysia).
Berberoglu, B. ed., 2016. Beyond the global capitalist crisis: The world economy in transition.
Routledge.
Berkmen, S.P., Gelos, G., Rennhack, R. and Walsh, J.P., 2012. The global financial crisis:
Explaining cross-country differences in the output impact. Journal of International Money and
Finance, 31(1), pp.42-59.
Bhuta, N., 2012. Governmentalizing sovereignty: indexes of state fragility and the calculability
of political order.
Blake, G.H. and Lawless, R.I. eds., 2016. The Changing Middle Eastern City. Routledge.
Blonigen, B.A. and Piger, J., 2014. Determinants of foreign direct investment. Canadian Journal
of Economics/Revue canadienne d'économique, 47(3), pp.775-812.
Blonigen, B.A. and Piger, J., 2014. Determinants of foreign direct investment. Canadian Journal
of Economics/Revue canadienne d'économique, 47(3), pp.775-812.
Bohl, D.D., Russo, G.S., Basques, B.A., Golinvaux, N.S., Fu, M.C., Long III, W.D. and Grauer,
J.N., 2014. Variations in data collection methods between national databases affect
Burrowes, R.D., 2016. The Yemen Arab Republic: The Politics of Development, 1962-1986.
Routledge.

33LITERATURE REVIEW AND METHODOLOGY
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(1), pp.88-122.
Cartwright, S. and Cooper, C.L., 2012. Managing mergers acquisitions and strategic alliances.
Routledge.
Chan, S. ed., 2016. Foreign direct investment in a changing global political economy. Springer.
Contractor, F.J., Lahiri, S., Elango, B. and Kundu, S.K., 2014. Institutional, cultural and industry
related determinants of ownership choices in emerging market FDI acquisitions. International
Business Review, 23(5), pp.931-941.
Creswell, J.W. and Poth, C.N., 2017. Qualitative inquiry and research design: Choosing among
five approaches. Sage publications.
Das, K.C., 2013. Home country determinants of outward FDI from developing
countries. Margin: The Journal of Applied Economic Research, 7(1), pp.93-116.
de Haan, J., 2014. Yemen; factors behind possible economic and political collapse. Strategic
analysis paper, Future Directions international.
Decreuse, B. and Maarek, P., 2015. FDI and the labor share in developing countries: A theory
and some evidence. Annals of Economics and Statistics/Annales d'Économie et de Statistique,
(119/120), pp.289-319.
Du, A., Behrensmeyer, A.K. and Bobe, R., 2014. Degrees of Bias in the Collection of Vertebrate
Paleoecological Data: Comparing and Reconciling Different Scales from Multiple Collection
Methods. The Paleontological Society Special Publications, 13, pp.10-10.

34LITERATURE REVIEW AND METHODOLOGY
Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of the
1990s. Routledge.
Dunning, J.H., 2015. Toward an Eclectic Theory of International Production: Some Empirical
Tests. In The Eclectic Paradigm (pp. 23-49). Palgrave Macmillan UK.
Eide, A. and Ingstad, B., 2017. Disability and poverty: A global challenge. Policy Press.
el Mallakh, R., 2014. The Economic Development of the Yemen Arab Republic (RLE Economy
of Middle East) (Vol. 14). Routledge.
Fan, C., Jun, B.H. and Wolfstetter, E.G., 2013. Licensing process innovations when losersʼ
messages determine royalty rates. Games and Economic Behavior, 82, pp.388-402.
Freeman, M., 2017. Human rights. John Wiley & Sons.
Harms, P. and Méon, P.G., 2012. Good and bad FDI: The growth effects of greenfield investment
and mergers and acquisitions in developing countries. Working paper.
Killing, P., 2012. Strategies for joint venture success (RLE international business) (Vol. 22).
Routledge.
Knobe, J. and Nichols, S. eds., 2013. Experimental philosophy (Vol. 2). Oxford University Press.
Lackner, H. ed., 2014. Why Yemen matters: A society in transition (Vol. 10). Saqi.
Lane, P.R. and Milesi-Ferretti, G.M.M., 2017. International financial integration in the aftermath
of the global financial crisis.

35LITERATURE REVIEW AND METHODOLOGY
Lau, L.S., Choong, C.K. and Eng, Y.K., 2014. Investigation of the environmental Kuznets curve
for carbon emissions in Malaysia: do foreign direct investment and trade matter?. Energy
Policy, 68, pp.490-497.
Laub, Z., 2016. Yemen in crisis. Council on Foreign Relations, 19.
Laufs, K. and Schwens, C., 2014. Foreign market entry mode choice of small and medium-sized
enterprises: A systematic review and future research agenda. International Business
Review, 23(6), pp.1109-1126.
Lewis, S., 2015. Qualitative inquiry and research design: Choosing among five
approaches. Health promotion practice, 16(4), pp.473-475.
Mina, W., 2017. Institutional Clusters and FDI Flows to the MENA Region. In Empirical Studies
on Economics of Innovation, Public Economics and Management (pp. 243-252). Springer,
Cham.
Musibah, A.S., Shahzad, A. and Fadzil, F.H.B., 2015. Analyzing the Business and Economic
Scenario of Foreign Direct Investment in Yemen Compared with That of Selected Countries in
the Middle East and North Africa (MENA). International Journal of Business and
Information, 10(1), p.125.
Nonneman, G., 2015. Oman and Yemen [Political and Economic Liberalisation].
O’Gorman, K., Lochrie, S. and Watson, A., 2014. Research philosophy and case
studies. Research Methods for Business & Management, pp.152-172.
Orkin, K., 2014. Data Collection Methods. In Encyclopedia of Quality of Life and Well-Being
Research (pp. 1430-1432). Springer Netherlands.

36LITERATURE REVIEW AND METHODOLOGY
Peterson, J.E., 2016. Yemen: The search for a modern state. Routledge.
Roberts, C., 2015. Foreign direct investment. AusIMM Bulletin, (Oct 2015), p.80.
Rugh, W.A., 2015. Problems in Yemen, domestic and foreign. Middle East Policy, 22(4),
pp.140-152.
Scully, G.W., 2014. Constitutional environments and economic growth. Princeton University
Press.
Sekaran, U. and Bougie, R., 2016. Research methods for business: A skill building approach.
John Wiley & Sons.
Terrill, W.A., 2014. Iranian involvement in Yemen. Orbis, 58(3), pp.429-440.
Vella, M. and Sammut‐Bonnici, T., 2014. Foreign Direct Investment. Wiley Encyclopedia of
Management.
Weigold, A., Weigold, I.K. and Russell, E.J., 2013. Examination of the equivalence of self-report
survey-based paper-and-pencil and internet data collection methods. Psychological
methods, 18(1), p.53.
Yin, R.K., 2013. Case study research: Design and methods. Sage publications.
Yusuf, M., Adams, C. and Dingley, K., 2014, June. Research Philosophy and Methodologies of
e-Government: Update from ECEG and ICEG. In Conference Proceedings, The 14th European
Conference on E-Government (ECEG), Spiru Haret University, Romania (pp. 242-251).