Introduction

fdi is defined as an investment made to acquire a lasting interest in an Enterprise operating outside of the economy of the investor1 .investment may be in Incorporated or unincorporated enterprises, branches or subsidiaries. The investors purpose is To gain an effective voice in the management of the enterprise. Some degree of equity Ownership is almost always associated with acquiring an effective voice and international Institutions guidelines suggest a threshold of 10 per cent. Fdi is also more likely to result in The importation of new technology and management skills, and is less likely to displace Existing operations.

The above definition involves cross-border flows. A broader concept of direct investment Can be considered, to include inflows from other parts of the same nation-state. Such flows Are much harder to identify, but if the data are available, they provide information that is of Great interest in analysing the economic impact of direct investment. Information on total Direct investment (cross border plus investment from elsewhere in the uk) is indeed Available for northern ireland at the broad tradable services level, but not for the narrower Definition used in this report.

1.2 type of fdi project Although all fdi should generate economic benefits to some degree, the extent of the benefits Will, in reality, vary substantially depending upon whether the fdi is a greenfield investment Or a merger/acquisition.

1.2.1 greenfield A greenfield investment establishing a new operation or expanding existing facilities is likely To be of greatest benefit, providing new capacity, additional jobs, possibly new technology And management techniques, training for staff and potential linkages to the global Marketplace. The increase in employment will provide additional spill over benefits to the Local economy via increased effective demand. There may be an additional boost where the New operation stimulates expansion in up/down stream businesses in the area. But this form Of fdi carries potential downsides. Existing industry in the area might be crowded out as The incoming producer draws on local resources of labour and intermediate goods. In addition There is a risk that profits do not wholly feed back into the local economy but are repatriated To the investors home economy.

1.2.2 mergers & acquisitions Mergers and/or acquisitions (m & as) account for the bulk of fdi but their initial impact is Less powerful than a greenfield investment since they normally involve merely a change of Ownership of existing assets. New technology and management skills may be introduced and Linkages to the global market may be enhanced. But if the merger/acquisition leads to an Expansion of capacity, the outcome would be similar to that following a greenfield Investment. Because the benefits of greenfield investments are significantly greater than Those associated with mergers and acquisitions, this research is concerned with the former Type of investment.

1.2.3 invest northern irelands policy on fdi Invest northern irelands policy towards fdi states that funding will only be provided to Support investments in export-oriented businesses. Invest ni therefore does not assist hq Operations, sales and marketing operations and logistic and distribution sectors. Nor does Invest ni assist mergers and acquisitions unless they lead to subsequent development

significance of study

1. Fdi are long term investment and flows in primary markets. 2.fdi are more stable and in term returns long term benefits. 3.fdi brings in capital and also helps in good governance practices. 4. The study made on the topic fdi will reveal the factor of feelings of the employees 5 it comprises of extrinsic and intrinsic factors and helps maintain able and willing work forces. 6. It is an interesting and significant area for conducting research.

review of literature

From a review of a range of literature sources, this section describes the benefits that fdi can Bring to an economy, assesses recent global and uk trends in fdi, and examines the impact Of increased fdi on economic growth and skills demand.

2.1 benefits of fdi the introduction of new products and processes; improved management practices; new technology and skills development; and improved job quality.

Although an increase in the level of fdi investment does have potential to deliver clear Benefits to the northern ireland economy, there is a risk that the incoming businesses could Crowd out activity in, and displace labour from, the indigenous business base. As part of our Research we have carried out an examination of literature on the crowding out issue, and have Concluded that although 100 per cent crowding out is unlikely to occur, some allowance for Crowding out should nonetheless be made. In addition to the economic benefits of fdi, there are also societal benefits of improved job Quality. A further job quality benefit arises as a result of the improvements that fdi companies can Bring to their host countrys skills base.

2.2 global and uk trends in fdi Data on trends in total fdi (including non-tradable activities) are available in terms of annual Flows (from the perspective of both the originating countries and recipients) and stocks, which Reflect the accumulation of flows in a country over a period of time. We use both approaches To illustrate trends in the evolution of fdi.

Fdi flows reached a peak at the turn of the century as the global economy Expanded vigorously, investment in technology surged and mergers and acquisition activity

Was especially strong. The economic slowdown of the early years of this decade and the Terrorist attacks on the us led to a marked deceleration in fdi, but the pace of flows has Picked up strongly in recent years in line with the buoyancy of the global economy.

conceptualization

Fdi flows are usually preferred over other forms of external finance because t h e y a r e non-debt creating, of non-volatile the projects and their by returns the depend Fdi on also

t h e performance

financed

investors.

facilitatesinternational trade and transfer of knowledge, skills and technology. In aw o r l d o f i n c r e a s e d c o m p e t i t i o n a n d r a p i d t e c h n o l o g i c a l c h a n g e , t h e i r complimentary and catalytic role can be very valuable.

Fdi is perceived superior to other types of capital inflows for s e v e r a l reasons: 1.i n c o n t r a s t t o f o r e i g n l e n d e r s a n d p o r t f o l i o i n v e s t o r s , f o r e i g n d i r e c t in vestors typically have a longer-term perspective when engaging in ahost country. Hence, fdi inflows are less volatile and easier to sustain attimes of crisis 2.while debt inflows may finance consumption rather than investment i n the host country, fdi is more likely to be used productively. 3.fdi is expected to have relatively strong effects on economic growth, asf d i p r o v i d e s f o r m o r e t h a n j u s t c a p i t a l . F d i o f f e r s a c c e s s t o internationally available technologies and management know -how, andmay render it easier to penetrate word markets.