September 4, 2008

Importance of FDI in Small Island State: The Case of Seychelles

1.0  Title

The working title of this dissertation is initially drafted as: Importance of FDI in Small Island State: The Case of Seychelles


2.0  Background of the Study

The process of making a physical investment into another country is known as foreign direct investment (FDI). This definition extends to include investments which are made to acquire lasting interest in enterprises operating outside of the economy of the investor. As such, FDI relationship mainly comprises a parent enterprise and a foreign affiliate that together form a multinational company (MNC). FDI can be categorized by direction (inward or outward); by target (greenfield investment, horizontal or vertical) and by motive (resource-, market-, efficiency-, or strategic asset-seeking). As Dunning (1988) puts it, FDI advents MNCs based on ownership, location and internationalization with emphasis given on location. The focus of the empirical research is the location advantage because of several factors such as natural resource endowments, availability of cheap but productive labour, human skills endowment, infrastructure facilities, system of incentives and regulation of investments in host countries, trade policy of host countries and the economic environment through macroeconomic and exchange rate stability.

Within the mainstream theoretical and empirical economic literature, however, the academic importance of FDI for island nations had been neglected until recently. FDI and its importance receive a wider database specifically for developing countries, OECD countries, Asian countries and African, Caribbean and Pacific (ACP) countries, but prove to be lacking for small island developing states (SIDS). Unsurprisingly, minimal attention was given to the role of FDI in SIDS because of the relatively low volume of capital inflows. However, FDI could be an important source for small island nations and was perceived to be an important contributor to growth and development. In lieu with this, Seychelles is one of the small island states that possess big potential. In fact, Seychelles ranked 20th (based on percent of GDP) in 2003 that attracts FDI because of the development of businesses and the creation of entrepreneurial culture as well as the sound politics and industrial policies.


3.0  Statement of the Problem

The problem that this research will address is the degree of importance of FDI to Seychelles. How FDI could improve the competitiveness of and how FDI could contribute to and promote the growth and development in general of the island nation will be addressed also. This research will also provide analysis on what should be done to make Seychelles more attractive and competitive to foreign direct investors. The study will answer the following research questions.

1)                          What are the recent trends and development in FDI in SIDS? In Seychelles?

2)                          What are the obstacles that foreign direct investors may experience when investing in SIDS? in Seychelles?

3)                          How the creation of externalities in the form of benefits available to all economic participants could leverage Seychelles' global economic participation?

4)                          How does FDI could contribute to the development of local businesses? What are the benefits of FDI for domestic business community?

5)                          How does FDI impact the standard of living of Seychellois? How FDI impact the employment of Seychellois?

6)                          What is the role of the Seychellois government and the investment policy in accelerating the inward movement of capital? What strategies should be embarked on?  


4.0  Objectives of the Study

The aim of this study is to measure the importance of FDI to SDIS and, in particular, Seychelles. The following specific objectives will be addressed.

1)                              To determine the recent trends, developments and obstacles in investing in Seychelles

2)                              To explore how Seychellois government and investment policies further attract and maintain FDI  

3)                              To analyse how Seychelles capture the beneficial effects of FDI through externalities

4)                              To evaluate how FDI contributes to the economic growth and development of Seychelles

5)                              To distinguish economic strategies that shall be implemented by the Seychellois government


5.0  Research Methodology

The study will incorporate an exploratory approach in the phenomenon because it aims to determine the present facts as well as facts that are not yet explored about the phenomenon. Exploratory research will enable the study to look at the problem in both descriptive and exploratory manner. It will look into the problem by exploring the views of different sets of respondents, as well as by exploring different literatures related with the study.

For this study, primary research and secondary research will be used. The primary source of data will come from the researcher-made questionnaire and interview questions. The primary data frequently gives the detailed definitions of terms and statistical units used in the study. These are usually broken down into finer classifications. The secondary sources of data will come from published articles, journals, theses and related studies on FDI and SIDS and FDI in Seychelles. Acquiring secondary data are more convenient to use because they are already condensed and organized. Moreover, analysis and interpretation are done more easily.


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