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THE IMPACT OF FOREIGN CAPITAL ON THE DEVELOPMENT OF
ENTREPRENEURSHIP IN UZBEKISTAN
Otabaev Yodgor
Senior Lecturer at Turin Polytechnical University in Tashkent
https://doi.org/10.5281/zenodo.15486576
Introduction
It has been said previously, foreign direct investment has a notably good
impact on the advancement of FDI recipient nations in all aspects of business. As
a result, numerous developing nations are working to encourage greater
investment because they provide a less expensive and more qualified labour
force, as well as economical raw commodities, to large corporations in advanced
nations. In keeping with this, the interest of investors has been drawn to Central
Asia over the past few years due to the region's large labour force, natural
resources, and ease of entry into the market. Furthermore, the marketplaces of
Central Asian countries are quite desirable because they are indeed of new
innovative technologies that may enable international companies to gain access
to the market. Furthermore, inflows of FDI are critical to those countries since
they have an abundance of raw resources and labour force, and investment is
thought to be beneficial in meeting job demands. Therefore, FDI inflows have
expanded dramatically in Central Asia. Uzbekistan is likewise regarded a fast-
developing nation in all areas, with FDI inflows increasing year after year. This is
primarily Uzbekistan's attempts in terms of reforms in liberalizing foreign
currency transactions and the construction of numerous economic destinations
where the government gives tax independence to investors have made
Uzbekistan a more appealing site for foreign investors. In response to the
(Figure 1) below, the quarterly foreign investment value is provided in millions
of USD. According to this the value of investment has been in wide fluctuation
throughout the period of 2010 in quarter one and 2023 quarter four. To be more
precise, the lowest value of foreign investment occurred in first quarter of 2018
when the investment dropped to negative value while the highest value of the
investment has been in recent years at second quarter of 2023 at almost one
billion USD. Incredible improvements to the value of FDI have been linked to
President Shavkat Mirziyoyev's correct policy implicitly, and fresh possibilities
have been created as a result of his campaigns, such as the formation of a new
corruption prevention agency, which is tasked with finding and punishing
corruption cases that are impeding entrepreneurial development. Based on the
World Bank's 2023 report, Uzbekistan ranks 61th in terms of business
formation and development. In response, Uzbekistan is hoping to draw investors
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in a variety of industries, including banking, gas manufacture,
telecommunications, agriculture, energy, and transportation, as part of new
initiatives for massive amounts privatization across the country. Moreover,
because Uzbekistan is specialized in crop cultivation and export, the vast
majority of investments are focused on developing the agricultural sector, as
agriculture contributes more than 25% of Uzbekistan's economic growth (World
Bank, 2023). Furthermore, the country's abundance of natural assets might
benefit international investors by increasing the number of materials that are
available for manufacturing.
In addition to attracting FDI to the country, this investigation focuses on
developing host firms through the interchange of ideas, technology, and
experiences. Therefore, in the next sections of the study, the effect of FDI flow on
business growth will be empirically analyzed alongside several other critical
elements that play a significant role in the improvement of host enterprises. In
the following paragraphs, studies from previously done research will be
evaluated in the literature review section. In the third paragraphs, the data will
be explained with certain statistical observations, and the fourth portion will be
given to the explanation of empirical analysis outcomes followed by the
conclusion in the last paragraph.
Source: Self-calculation (Data has been taken from Central Bank of
Uzbekistan)
-200
0
200
400
600
800
1000
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
FDI (USD in millions)
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Literature review
A number of researchers have investigated the impact of foreign direct
investment on the development of entrepreneurial endeavours throughout time.
Although some stated that FDI had a favourable impact on entrepreneurship,
others pointed to the opposite. The following studies and their findings will be
thoroughly examined. According to Menumo’s (2015) opinion, numerous new
startup enterprises are claimed to be one of the most important processes for
country development in many circumstances. Furthermore, several experts
recognized the good impact of launching a new enterprise on the financial
growth of countries. Furthermore, according to Klapper et al. (2006) and
Djankov et al (2002), startups are believed to have a greater advantage when it
comes to of development because they generate a highly competitive
environment in the market, that contributes to increased profitability and
economic advancement. As previously said, the entrance of FDI causes the
growth of new technologies in a specific nation, which helps to boost the
production process when contrasted with pre-FDI inflows. According to the
authors, foreign direct investment has a favourable impact on both established
and emerging nations by promoting entrepreneurship (Ayyagri and Kosova,
2010). Furthermore, the advantages of foreign direct investment are related
with labour transference (Acs et al., 2007, 2009, 2013). To be more specific,
employees who have earned valuable management and financial knowledge may
leave international organisations to start their own businesses as independent
entrepreneurs. From this perspective, FDI inflows have served as a mechanism
of delivering knowledge, skilled labour, and technology to host nations (Acs et
al., 2013). Furthermore, the favourable effects of FDI on entrepreneurship may
be noticeable in terms of export business. According to the estimates of De
Clercq et al (2007), the influx of foreign direct investment offers implications for
export association of business owners by encouraging host business leaders to
utilize enhanced transportation facilities created by foreign businesses, and
those foreign businesses aid in the development of host entrepreneurs in terms
of becoming competitive in exporting, and as a consequence, this situation
contributes to the long-term development of a nation.
In reaction to the favourable influence of foreign direct investment, this
may have an adverse effect and impede the expansion of host enterprises. This is
because growing rivalry between international and host markets in terms of
infrastructure and capital markets may lead to the replacement of host
businesses by foreigners, resulting in an impairment of local entrepreneurs'
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influence in the host market (De Backer and Sleuwaegen, 2003). The impact of
market competition may result in reduced product prices and higher average
labour costs, resulting in inefficiency of host businesses and a drop-in launch
activity in host nations (Gorg and Strobl, 2002). According to Albulescu and
Tamasila (2014), either outflow and influx of foreign direct investment have
negative economic outcomes in different kinds of business, specifically business
Activity of Opportunity (OEA) and Necessary Entrepreneurship Activities (NEA).
Furthermore, because of the disparate distribution of FDI, corporate sectors will
diversify as a consequence of one sphere falling below another (Acs et al., 2008,
2009; Meyer and Sinani, 2009; Danakol et al., 2017).
Objective of research
As each study is targeted to examine some important condition, this study
is also going to examine the following objectives by responding the following
interest areas:
To examine the impact of Foreign Direct investment on development of
Entrepreneurship
To analyze and compare the findings of the present study with those of
previously conducted identical studies
To provide relevant recommendations so as to accelerate the influence of
FDI on growth of local entrepreneurs’ operations in case of Uzbekistan.
The aforementioned points will serve as the study's primary goals, and as
was previously indicated in the project's later stages, those goals will be
supported by pertinent data as well as other crucial elements that are crucial to
the growth of entrepreneurship in Uzbekistan. The present study shares certain
similarities with earlier research endeavours concerning the elucidation of the
impact of foreign direct investment on the growth of company operations in
multiple countries, including Indonesia, Malaysia, and other African nations
(Agosin and Machado, 2005; Borensztein, De Gregorio, and Lee, 1998). The
primary goal of the research is to determine whether or not these goals are
handled effectively. An empirical investigation
of the relationship between foreign direct
investment and business management is provided below.
Bibliography:
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