2-2 SOME CONCEPTS ON FDI

Dunning (1993) found that cost, market, competitiveness, competition and investment climate are factors that come into consideration in the formation of FDI. He proposed a of typology factors motivating investors to relocate to a country that is "Resources Seekers, Market Seekers, Efficiency Seekers, Strategy Asset or Capability Seekers”. He developed this theoretical framework in 1997 and came up with three main factors that attract FDI into a country: "ownership advantages, internalization advantages, Localization advantages" (SchneFDIr and Frey, 1985) SchneFDIr and Frey (1985) also found that FDI in developing countries is an

increasing function of the growth rate of GNP as opposed to inflation, external deficit, cost of production factors and political instability. The results of the study of Bhattacharya and al. (1997) showed that the growth of GDP, the openness of the economy to the exterior and the variability of real exchange rates are key factors that attract FDIs.

Romalahy and Rajamarison (2008) used econometric methods as Agenor did, to determine an FDI function for Madagascar. They used 10 variables in view of existing literature, results previously obtained and the specificity of the Malagasy economy. These variables are: gross fixed capital (equivalent of public investment, the ratio of private sector credit, the rate of real effective exchange ratio of debt service on long-term inflation, GNP per capita, bank interest rate, growth rate of GDP and taxes on foreign trade.

They discovered that in the long term the main variable explaining FDI is the ratio of private investment. Other variables that attract Malagasy FDI are the GDP growth rate and the openness of the economy. In the short term, only the ratio of private investment has a positive influence on FDI. In short, most of these authors use econometric models (co-integration, instrumental variable models)

2-3 RISKS AND ADVANTAGES LINKED TO FDI

According to Malcolm Gillis, Dwight H. Perkins, Michael Roemer and Donald R. Snodgrass, in their book "Economic Development" There are 5 advantages to draw from foreign investment:

 Transfer of capital from rich to poor countries that includes the establishment of multinationals

 Job creation in the host country

 Technology transfer

 Recruitment of managers

 Access to global markets

To obtain the maximum of expected benefits from FDIs, they argue that governments in developing countries must apply a range of restrictions and incentives such as: functional requirements, criteria for local ownership, and restrictions on repatriation of profits, monopoly privileges and tax exemptions.