International Trade And Foreign Investment Essay

International Trade And Foreign Investment Essay

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1 The Interplay Between International Trade and Foreign Investment
Trade and investment are highly connected that could be illustrated as two sides of the same coin. Companies conduct cross-border trade to supply their foreign investment, and they invest abroad to bolster their trade. Furthermore, in the liberalisation era, when investors produce and consume both goods and services, an open trading system will provide a bright investment climate. Equally important, international trade and foreign investment have similar dominant actors through the presence of multinational companies.
From a government perspective, when the government enacts policy, it is not simply designed to pursue trade or investment objectives, that is, subsidy policy. In addition, the close connection of trade and investment is depicted from the existing regulation that become more converged. Through its binding treaties, the WTO has applied many rules covering not only trade but also investment as reflected in the GATS and TRIMS Agreement. Besides, some preferential trade agreements, such as NAFTA and TPP have separately regulated investment and investment arbitration. Contrarily, trade became integrated into investment treaties. Some existing BITs encompassing not only protection but also access or entry rights. They also forbid trade-related performance requirements, especially provision to require the use of local products and transfer of technology.
2 Benefits of International Trade
International trade has fluctuated over the last 20 years. Trade flows increased progressively until the late 1990s, and then fostered by a significant rise in the early 2000s. Due to the economic crisis in 2008, however, trade flows were sharply decli...

... middle of paper ...

...s to earn the competitive advantage in order to enter international markets.
The next benefit of FDI is the increase of productivity and export capacity. Arnold and Javorcik stated that the acquisition process from local to the foreigner improved productivity in the manufacturing sector in Indonesia. This progress was reached by means of technological advancement, superior know-how, managerial enhancement, marketing strategies, and motivational lesson for employees. With respect to export expansion, the presence of FDI is an important source for local firms to gain information relating how to export products, and then launch distribution channels in foreign markets. Chen and Swenson summarised that FDI has contributed to the increase of transaction unit values up to 6,3 percent, assisting local firms to expand new product exports by 1.3 percent in China.

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