Foreign direct investment plays a significant role in the development of any economy.It
is one of the measures of growing economic globalization and acts as a link that fills the gap between investment and saving. The whole world is currently more global than it had ever been before.All the developing countries are easing up their policies to welcome investment from countries which are rich in capital resources.
Huge firms in developed countries are now focusing on new markets to invest in.
Countries like China and India ,which have abundant labor available and a scope for products are favorable locations for FDI because they show the prospect of achieving high profits.Countries like United States are among the leading sources of FDI in India and China.
The creation of cross-national cooperation and agreements such as the European Union (EU),the Association of Southeast Asian Nations (ASEAN) and the North America Free Trade Area (NAFTA) have produced great changes in the conditions of international trade made with different world regions.
Major foreign companies that served international markets using exports only have now diversified and have in turn replaced a part of exportation by having foreign production.Most firms,therefore view FDI and exports as substitutes for one another.FDI happens when a company in one country makes a direct investment of business interests such as creation and marketing of a product in another country (foreign country).A company/firm that undertakes FDI becomes a multinational enterprise (Hill,2003)