Privatization induced FDI: impact on developing countries

Abstract

This study surveys the theories behind FDI and privatization with an empirical focus the effect of privatization induced FDI on the development of a country. For this purpose developing countries in four regions have been taken into account. The regions of Central and Eastern Europe South East Asia, Latin America and South Asia have been taken into consideration. A regression analysis has been carried out with the help of the Cobb Douglas function to study the impact. The paper is written from the perspective of a policy –maker weighing the adoption of a national privatization program as a way attracting FDI into a developing country like India. For this reason a total of 51 developing countries across the four regions have been included in the regression analysis. Our analysis showed that the FDI was not very beneficial to Latin American countries. However FDI had positive externalities in the other three regions. The type of FDI played a crucial role in these regions in positive contribution to the growth of these regions. If privatization is carried to induce FDI then it should be targeted in nature to achieve development.