Foreign Direct Investment Case Study

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By definition foreign direct investment is the acquisition of tangible assets such as machinery, land and factories; this type of investment are often between two companies- usually multinationals from different countries. FDI is one of the benefits of globalisation as it has a direct impact on aggregate demand having a follow on effect on technology, job opportunities and increased intellectual property owned by countries. In this essay I will discuss some of the factors that affect a country’s disposition to gaining foreign direct investment.
One of the many factors that may make a country more attractive to foreign direct investment is the level of corporation tax within the country. For example, if a firm wishes to expand in another country, they will have to assess the profitability of the investment where corporation tax is a huge factor when judging the profitability (HM Revenues & Customs, 2013). However, FDI does not only mean expanding into another country, whereas it may just be an investment into the infrastructure where the level of corporation of tax is meaningless. Therefore, if the level of corporation tax is high, then the investment decision may be reprimanded, only if firms are setting up production in other countries. This then suggests that some countries may attract more FDI than other countries depending on the level of corporation tax, where expanding multi-nationals are able to minimise corporation tax payments.
However it could be argued that levels of corporation tax may not play a huge factor in investor’s decisions when deciding to invest in foreign countries as multi-national companies have the ability to declare their profits in tax havens such as Luxembourg and Ireland as Eicke (2009) suggests. Thi...

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...a lot of FDI is because of its abundance of natural resources.
Another reason why some countries may attract more FDI than others may be due to the quality of infrastructure that resides in the economy. Not only is infrastructure a key determinant for foreign investors but it also helps improve the competitiveness between domestic firms. Moreover Rehman (2011) suggests that poor infrastructure causes unnecessary transactions costs such as communication and transportation costs. Also improvements in infrastructure can exert an advantage to the economy’s export capacity. For example, if a country builds another airport, a firm can increase its exports to foreign countries which attracts more FDI as they are able to expand their output thus leading to increased net profits. Furthermore poor infrastructure may hinder foreign investment as they will be expecting to have

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