Understanding FDI in Socialist Nations

Abstract

The link between foreign direct investment and economic growth has been widely studied. The studies have provided insights into how developing nations enable growth by adjusting policies to entice investors. Foreign investors entering emerging markets have to make strategic decisions on how to set up their operations. Investors look for markets and countries that would maximize their returns and position themselves as leaders in the industry. Hence, understanding entry requirements and economic policies are vital to understanding FDI. Keeping this in mind, this chapter analyses FDI in socialist nations and how their policies have evolved over time. The chapter will analyze the motivations and trends in FDI and how institutional conditions have enabled or impeded growth. The chapter studies China and Vietnam and compares their approach to FDI. The chapter uses Eclectic Theory posited by Dunning to understand changes in policies and how socialist nations are evolving to accept FDIs. The chapter concludes with a comparison section and presents scope for further research.