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Positive effects of fdi
Benefits of foreign direct investment
Costs and benefits of foreign direct investments in developing countries
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Introduction
In macroeconomics, foreign direct investment has been defined as the direct investment made in a country by foreign individuals or corporate organizations. On a broader view, FDI refers to activities such as acquisitions and mergers, building of new facilities like factories and joint ventures. Zilibotti (2009) posits that there are three major forms of Foreign Direct Investment: Horizontal FDI where corporate investors duplicate the same activities in their home country in the country of investment, Platform FDI where the corporate invests in a country as a platform for exporting to another third country and vertical FDI where corporate investors downstream or upstream in a value chain. According to Zilibotti (2009), the concept has been studied extensively and hence much information can be available.
To understand the impact of FDI on a country’s economy, the aggregate demand given by where is the aggregate demand, is consumption, is investment, is government expenditure, is net exports (Zilibotti, 2009). Foreign Domestic Investment is injected through the investment expenditure variable. In order to determine how much FDI a country has, a net value between inflow and outflow investment. The impact of FDI on the aggregate demand is positive when the net FDI value is positive (there is more inflows than outflows) (Zilibotti, 2009). In order to understand these theoretical arguments, this paper presents a discussion on the practical impact of FDI on Chinese economic growth measured through Gross Domestic Product per capita annual growth rate. The use of GDP per capita is commonly used to measure economic growth as it takes into account population differentials. In the sequent discussions, a detailed overvi...
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...ely slow. Therefore, impact of FDI on economic growth is not instant rather lagged and other factors neutralize the actual impact of FDI and hence response is lagged or slow. This explains the low coefficient of determination (33.35%) of FDI.
Conclusion
In summary, Foreign Direct Investment is defined as net investment inflows derived by finding difference between inflow FDI and outflow FDI. Economic theories such as classical theory indicate that the impact of net FDI on economic growth is positive. The aggregate demand function can be used to illustrate this relationship. The analysis in the case of China has found that its net FDI inflow between 1982 and 2012 has positive impact on its economic growth rate. Additionally, it is a significant variable in determination of the variation in economic growth. Nevertheless, further research can help expound on the issue.
Wei, W. (2005). China and India: Any difference in their FDI performances? Journal of Asian Economics, 16(4), 719-736. doi:10.1016/j.asieco.2005.06.004
Off-shoring is the establishment of business operations outside national boundaries. The process of moving business outside these boundaries is to garner an advantage either through tax breaks, lower wages, lower transportation cost and/or relaxed regulations ("Offshore definition," 2014). Many firms either branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its good to take advantage of lower cost (i.e. cheap labor). Markusen and Maskus found horizontal multinational replaces trade whereas, a vertical multinational positively correlates with trade (Markusen & Maskus, 2001).
Trade is an important factor of the prosperity of one’s society. For instance, silk and porcelain were eminent products of the Silk Road trade network for it aided China’s economy. China was the dominant country, unlike Europe, whose economy never fluctuated. However, the global flow of silver, produced by Spanish colonial America and Tokugawa Japan, during the mid-16th century to the early 18th century affected social and economic aspects of many regions connected with the trade. As a result of the production of silver, European integration in the globalization of world trade increased, as did the economy and social divisions of China. Not only did it affect economies and societies throughout the world, but it also affected a region internationally.
In accordance with remittances, direct monetary profit from the overseas Chinese has also come from the aspect of foreign direct investment (FDI). As Newland and Patrick explain that, “China has long worked to attract direct investment and open trade opportunities through overseas Chinese communities.” (Newland and Patrick 5) Arguably, that policy towards the diaspora has been used by the PRC for developing its economy domestically and internationally. This is because as Newland and Patrick further explain, remittances and foreign direct investment influence, “the incidence of poverty in their home countries, market development (including outsourcing of production), technology transfer, philanthropy, tourism, political contributions, and more intangible flows of knowledge, new attitudes, and cultural influence” (Newland and Patrick iv).
I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.
One of the many byproducts of globalization has been the surge of free trade agreements, bilateral trade agreements, and regional trade agreements signed internationally as markets respond to increased global demand. Despite China and Nigeria signing bilateral trade agreements, it is clear that China has benefitted more from this relationship than has Nigeria, at least in the short-run. If Nigeria is to increase its economic development and decrease corruption amongst the political elite, promote good governance and effective monetary policies, it would be able to use the current influx of Chinese money from oil revenue to develop into a hub for numerous foreign investors venturing into the African market. In this paper we examine whether the association between these two countries should be considered neo-colonial exploitation by a global super power or a mutually beneficial relationship for emerging economies based on vital commodities such as crude oil.
...ts of many low-income states do not have the resources to supply these goods. This creates a bottleneck effect that deters private investment- thus foreign aid to infrastructure (economic aid) can have a positive impact on FDI inflows.
One of the most well accepted models of FDI is Buckley and Casson’s (1976) internalisation theory, who developed a model of MNCs and FDIs centered around the interrelationship between market imperfections, knowledge and the internalisation of production and consumption (Buckley and Casson, 2009). Specifically, the theory recognized that multinational corporations are both horizontally and vertically organized, and that the “the vertically integrated firm internalises a market for an intermediate product, just as the horizontal MNE [multinational enterprise] internalises markets for proprietary assets” (Caves, 1996: p.13). In addition, internalisation will occur, and multinational corporations will expand only as far as the advantages, including barriers to entry, are not offset by the costs of control, communi...
“For those who believed that Brazil would forever be the country of the future, I have a piece of bad news. The future has finally arrived.” For years, the largest and most industrialized nation in Latin America has been known as the country of tomorrow. That slogan may soon be out of date. Under the guidance of former finance minister and current president, Fernando Henrique Cardoso, this tenth largest economy in the world, once known for its high tariffs and even higher inflation, has entered a period of steady growth, the fruit of a newly-stable political and commercial environment. In combination with the upturn in its economy, Brazil’s demonstrated preference for foreign products and strong direct investment presence bode well for expanded sales of equipment and services in future years.
Slow, growth causes few jobs to be created as it means a slower rate of
FDI is a short form of Foreign Direct Investment which is refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor. The investment is direct because the investor, which could be a foreign person, company or group of entities, is seeking to control, manage, or have significant influence over the foreign enterprise.
Kushil Kumar Haldar. “Economic Growth in India Revisited”: An Application of Co integration and Error Correction Mechanism. South Asia Economic journal 2009 10: 105
Over the years, foreign direct investment (FDI) has become a popular way for countries to move capital flows from one country to the other. Basically, foreign direct investment simply refers to an instant when a business entity for a particular country invests in an income generating asset in another country with a hope of return on the investment. Foreign direct investment has its benefits to the foreign investor, the home country and the host country (Froot 1993, 60). However, it should be noted that the benefits that come about as a result of FDI can only be possible if all the three parties follow the right regulations and the ethical ways of doing business is strictly adhered to. This paper sheds some light on the costs and benefits of FDIs to the investors, the home country and the host country. In addition, it will also review how the country and the firms’ level of development and growth play a role in determining the costs and benefits accrued from the FDIs (Weigel, Wagal & Gregory 1997, 56).
Sukar, A., Ahmed, S., & Hassan, S. (n.d.). THE EFFECTS OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH. Southwestern Economic Review.
International business contains all business transactions private and governmental, sales, investments, logistics, and transportation that happen between two or more regions, nations and countries beyond their political limits. Generally, private companies undertake such transactions for profit governments undertake them for profit and for political reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources includes capital, skills, and people. for international production of physical goods and services such as finance, banking, insurance, and construction.