Nargiza kasimova farkhod mukhamedov elkan harebov

participation in productive  enterprises established jointly with Russian legal 
entities and citizens. Foreign investment can also take the form of establishing 
companies fully owned by foreign investors or branches of foreign legal entities. 
Foreign investors can  acquire  enterprises, ownership rights, buildings, a 
portfolio of shares or bonds. Foreign investors are entitled to acquire rights to 
utilize land and other natural resources, or other ownership rights. 
The scope of foreign capital participation in the domestic economy depends 
on  how  attractive  this economic  system  is for foreign investors. It should be 
borne in mind that foreign investors  may choose from quite a range of 
international projects  in various fields and at different levels (e.g. regional, 
national, international). It is therefore necessary to stimulate cash flow and  to 
direct it in accordance with the borrower's needs. As it has been noted above, 
there is no fundamental difference  in  encouraging domestic or  foreign 
investment. We can only talk about the specificity of this capital flow generated 
by a non-resident participation in the investment deal. There are several ways to 
encourage the inflow of foreign capital in the national economy: 
- assist  in collecting information about investment opportunities in the 
country, individual regions, and industries 
- provide opportunities for designing a convenient scheme of financing 
projects, allocation of land, etc. 
- offer protective tariffs for the products competing with those produced by 
foreign investors 
- use duty-free imports  of equipment and materials required for 
implementation of investment projects 
- set  FX limits, which will enable to forecast fluctuations  of the national 
currency exchange rate 
- create tax concessions 
 
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- introduce legislative protection measures 
The benefits from foreign capital inflow for the national economy are as 
follows. The growth of the total income from foreign investment is higher than 
the growth of the investor return. If foreign investment contributes to efficiency of 
the national economy, then the marginal product is distributed in the following 
areas.  First, investors receive their share of income in the form of dividends, 
deduction from profit, rents, etc. Secondly, employees (labor force) receive their 
salary and wages. Thirdly, generally, the saturated commodity market leads to 
lower prices, which can be regarded as an aggregate income of all consumers, 
residing in the country. Finally, the expansion of production, and a rise in labor 
payments will inevitably cause the replenishment of the state treasury, as tax 
liabilities and fringe benefit expenses increase. In addition, most importantly, 
investment may often offer many indirect benefits owing to economic openness 
of the region or the whole country. 
Findings of foreign studies do not give enough evidence to support the idea 
that raising incentive levels always  results in the increased amount inward 
foreign  investment (Loree & Guisinger, 1995). In their opinion, incentives 
offered by one  country or even a region “may well trigger a response from 
countries that are competitor for foreign investment, ending in the prisoner’s 
dilemma trap where all countries increase their incentives.” However,  in their 
attempts to attract more foreign investment, regions  can  create redundant 
incentives and may lose part of their revenues as “there is no reason to believe 
that a dollar spent on incentives has a higher return, in the form of increased 
foreign investment, than a dollar spent on infrastructure’ (Loree & Guisinger, 
1995). Therefore, it is advisable to remember that the guarantee of investment 
helps  remove disincentives, but do not encourage the investment flow in  the 
regional economy.  
The attraction of foreign capital mainly depends on opportunities to receive 
and to export expected returns. Some host countries offer tax concessions (e.g., 
the effective tax rate on corporate income), but this incentive works if there is 
real income. Foreign investors are much more  interested in maximizing their 
income rather than using tax incentives. Therefore, tax concessions,  so much 
spoken about in the press, are not the primary driver for investment, but rather 
necessary conditions for such investment. Along with guarantees against the risk 
of expropriation or worsened conditions of investment, foreign capital providers 
carefully consider the risk of suffering  losses due to other  in-country reasons. 
The recipient country may initially agree to 100% foreign ownership of the 
ongoing project, but then it may insist on a gradual involvement in the project 
by providing domestic capital and national resources. In addition, an over-use of 
tax incentives may have negative consequences, regardless whether investors are 
foreign or domestic. 
 
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Nevertheless, financial incentives do need to be provided, and an educated 
investor,  ceteris paribus, chooses  the most favorable (tax-free) region. The 
absence of tax concessions in regions and industries may lead to the fact that 
foreign investors will consider their own interests only. 
Major barriers to  boosting  foreign  investment  are  exchange control  and 
state control over capital formation: they restrict foreign access to local financial 
markets, limit the freedom of capital repatriation and dividends; and lower the 
share of local companies’ statutory capital that can be owned by foreigners. At 
the same time, the absence of these constraints weakens the control over foreign 
capital. A reasonable compromise helps both sides of investment transactions 
sort out the problem.