Impact of FDI on Economy: A Comparative Study of China and Latvia

Abstract

This study is about the impact of FDI on economy. It's a comparative study between China and Latvia. Foreign direct investment (FDI) is a potent weapon of economic development, especially in the current global context. It enables developing economies to build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labour through transfer of technology and managerial know-how, and help integrate the domestic economy with the global economy (Harris, Clive. 2003). Based on the model which has been used in this study to measure the impact of FDI on economy (GDP and CPI), it has been found that China is able to utilize its FDI for growth more efficiently than Latvia as the coefficient of FDI for China is more than that of Latvia. In other words, effect of FDI is more in China than in Latvia. But Latvia is adopting new policies to attract more investors. But they still need to imply many changes like proper infrastructure development to ease the access to the markets. Latvia also needs to make some necessary adjustments in their monetary policies.

Keywords: FDI, Economy, China, Latvia.

Jell Classifications: D25, E20, F63.