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In the 1970s and 1980s, developing countries did impose several barriers on entry of foreign
capital. However, the late 1980s and 1990s marked the onset of globalization, aimed at
integrating the whole world into a single global economy. The once conservative developing
nations, realizing the multifarious benefits of foreign direct investment (FDI), began encouraging
entry of foreign firms, using various incentives, such as tax holidays, production subsidies, cash
grants, labor training grants, and import duty exemptions.
Gradually, FDI and foreign aid became two very important sources of foreign capital for these
capital-constrained economies. The host countries on the other hand, through their representative
governments, generally expect MNE investments commonly referred to as Foreign Direct
Investment (FDI) to benefit local economies. As a result, governments continuously devise
means to attract Multi National Enterprise (MNE) investors to bring in the required FDI.
FDI is a facility made by foreign investors on the basis of profitability of the investment. A new
phenomenon was seen in the context of managing economies in a bid to strengthen the countries’
economy, the result of which states started to compete for foreign investment. Creating enabling
environment to attract FDI, the process involved the creation and review of respective laws. This
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is in line with the thinking that foreign investment could be beneficial to the host economy if the
foreign investment is harnessed to the economic development of the host economy.1
Developing countries began to enact in legislation that was designed to screen foreign
investment having regard to the effect it would have on the domestic economy. This is thought to
be in continuous process. Hence this study seeks to examine the effectiveness of the legal and
regulation of FDI in Tanzania and its impact on socio- economic development. |
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