Foreign Direct Investment

Сентябрь 3, 2022

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Foreign Direct Investment

Содержание

2. Introduction Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce
3. Foreign Direct Investment In The World Economy The flow of FDI refers to the amount of
4. Trends In FDI There has been a marked increase in both the flow and stock of
5. Trends In FDI Figure 7.1: FDI Outflows 1982-2006 ($ billions)
6. The Direction Of FDI Most FDI has historically been directed at the developed nations of the
7. The Direction Of FDI Figure 7.3: FDI Inflows by Region ($ billion), 1995-2006
8. The Direction Of FDI Gross fixed capital formation summarizes the total amount of capital invested in
9. The Direction Of FDI Figure 7.4: Inward FDI as a % of Gross Fixed Capital Formation
10. The Source Of FDI Since World War II, the U.S. has been the largest source country
11. The Source Of FDI Figure 7.5: Cumulative FDI Outflows ($ billions), 1998-2005
12. The Form Of FDI: Acquisitions Versus Greenfield Investments Most cross-border investment is in the form of
13. The Shift To Services FDI is shifting away from extractive industries and manufacturing, and towards services
14. Theories Of Foreign Direct Investment Why do firms invest rather than use exporting or licensing to
15. Why Foreign Direct Investment? Why do firms choose FDI instead of: exporting - producing goods at
16. Why Foreign Direct Investment? An export strategy can be constrained by transportation costs and trade barriers
17. Why Foreign Direct Investment? Internalization theory (also known as market imperfections theory) suggests that licensing has
18. The Pattern Of Foreign Direct Investment Firms in the same industry often undertake foreign direct investment
19. The Pattern Of Foreign Direct Investment Vernon argued that firms undertake FDI at particular stages in
20. The Pattern Of Foreign Direct Investment According to the eclectic paradigm, in addition to the various
21. Political Ideology And Foreign Direct Investment Ideology toward FDI ranges from a radical stance that is
22. The Radical View The radical view traces its roots to Marxist political and economic theory It
23. The Free Market View According to the free market view, international production should be distributed among
24. Pragmatic Nationalism Pragmatic nationalism suggests that FDI has both benefits, such as inflows of capital, technology,
25. Shifting Ideology Recently, there has been a strong shift toward the free market stance creating: a
26. Benefits And Costs Of FDI Government policy is often shaped by a consideration of the costs
27. Host-Country Benefits There are four main benefits of inward FDI for a host country: 1. resource
28. Host-Country Benefits 3. balance of payments effects - a country’s balance-of-payments account is a record of
29. Host-Country Benefits 4. effects on competition and economic growth - FDI in the form of greenfield
30. Host-Country Costs Inward FDI has three main costs: 1. the possible adverse effects of FDI on
31. Host-Country Costs 2. adverse effects on the balance of payments with the initial capital inflows that
32. Host-Country Costs 3. the perceived loss of national sovereignty and autonomy key decisions that can affect
33. Home-Country Benefits The benefits of FDI for the home country include: the effect on the capital
34. Home-Country Costs The home country’s balance of payments can suffer: from the initial capital outflow required
35. International Trade Theory And FDI International trade theory suggests that home country concerns about the negative
36. Government Policy Instruments And FDI Home countries and host countries use various policies to regulate FDI
37. Home-Country Policies Governments can encourage and restrict FDI: To encourage outward FDI, many nations now have
38. Host-Country Policies Governments can encourage or restrict inward FDI To encourage inward FDI, governments offer incentives
39. International Institutions And The Liberalization Of FDI Until the 1990s, there was no consistent involvement by
40. Implications For Managers What are the implications of foreign direct investment for managers? Managers need to
41. The Theory Of FDI The direction of FDI can be explained through the location-specific advantages argument
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Introduction
Foreign direct investment (FDI) occurs when a firm invests directly in

new facilities to produce and/or market in a foreign country
Once a firm undertakes FDI it becomes a multinational enterprise
FDI can be:
greenfield investments - the establishment of a wholly new operation in a foreign country
acquisitions or mergers with existing firms in the foreign country

Слайд 3

Foreign Direct Investment In The World Economy
The flow of FDI refers

to the amount of FDI undertaken over a given time period
The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time
Outflows of FDI are the flows of FDI out of a country
Inflows of FDI are the flows of FDI into a country

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Trends In FDI
There has been a marked increase in both the

flow and stock of FDI in the world economy over the last 30 years
FDI has grown more rapidly than world trade and world output because:
firms still fear the threat of protectionism
the general shift toward democratic political institutions and free market economies has encouraged FDI
the globalization of the world economy is having a positive impact on the volume of FDI as firms undertake FDI to ensure they have a significant presence in many regions of the world

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Trends In FDI
Figure 7.1: FDI Outflows 1982-2006 ($ billions)

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The Direction Of FDI
Most FDI has historically been directed at the

developed nations of the world, with the United States being a favorite target
FDI inflows have remained high during the early 2000s for the United States, and also for the European Union
South, East, and Southeast Asia, and particularly China, are now seeing an increase of FDI inflows
Latin America is also emerging as an important region for FDI

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The Direction Of FDI
Figure 7.3: FDI Inflows by Region ($ billion),

1995-2006

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The Direction Of FDI
Gross fixed capital formation summarizes the total amount

of capital invested in factories, stores, office buildings, and the like
All else being equal, the greater the capital investment in an economy, the more favorable its future prospects are likely to be
So, FDI can be seen as an important source of capital investment and a determinant of the future growth rate of an economy

Слайд 9

The Direction Of FDI
Figure 7.4: Inward FDI as a % of

Gross Fixed Capital Formation 1992-2005

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The Source Of FDI
Since World War II, the U.S. has been

the largest source country for FDI
The United Kingdom, the Netherlands, France, Germany, and Japan are other important source countries

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The Source Of FDI
Figure 7.5: Cumulative FDI Outflows ($ billions), 1998-2005

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The Form Of FDI: Acquisitions Versus Greenfield Investments
Most cross-border investment is

in the form of mergers and acquisitions rather than greenfield investments
Firms prefer to acquire existing assets because:
mergers and acquisitions are quicker to execute than greenfield investments
it is easier and perhaps less risky for a firm to acquire desired assets than build them from the ground up
firms believe that they can increase the efficiency of an acquired unit by transferring capital, technology, or management skills

Слайд 13

The Shift To Services
FDI is shifting away from extractive industries and

manufacturing, and towards services
The shift to services is being driven by:
the general move in many developed countries toward services
the fact that many services need to be produced where they are consumed
a liberalization of policies governing FDI in services
the rise of Internet-based global telecommunications networks

Слайд 14

Theories Of Foreign Direct Investment
Why do firms invest rather than use

exporting or licensing to enter foreign markets?
Why do firms from the same industry undertake FDI at the same time?
How can the pattern of foreign direct investment flows be explained?

Слайд 15

Why Foreign Direct Investment?
Why do firms choose FDI instead of:
exporting -

producing goods at home and then shipping them to the receiving country for sale
or
licensing - granting a foreign entity the right to produce and sell the firm’s product in return for a royalty fee on every unit that the foreign entity sells

Слайд 16

Why Foreign Direct Investment?
An export strategy can be constrained by transportation

costs and trade barriers
Foreign direct investment may be undertaken as a response to actual or threatened trade barriers such as import tariffs or quotas

Слайд 17

Why Foreign Direct Investment?
Internalization theory (also known as market imperfections
theory)

suggests that licensing has three major drawbacks:
licensing may result in a firm’s giving away valuable technological know-how to a potential foreign competitor
licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability
a problem arises with licensing when the firm’s competitive advantage is based not so much on its products as on the management, marketing, and manufacturing capabilities that produce those products

Слайд 18

The Pattern Of Foreign Direct Investment
Firms in the same industry often

undertake foreign direct investment around the same time and tend to direct their investment activities towards certain locations
Knickerbocker looked at the relationship between FDI and rivalry in oligopolistic industries (industries composed of a limited number of large firms) and suggested that FDI flows are a reflection of strategic rivalry between firms in the global marketplace
The theory can be extended to embrace the concept of multipoint competition (when two or more enterprises encounter each other in different regional markets, national markets, or industries)

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The Pattern Of Foreign Direct Investment
Vernon argued that firms undertake FDI

at particular stages in the life cycle of a product they have pioneered
Firms invest in other advanced countries when local demand in those countries grows large enough to support local production, and then shift production to low-cost developing countries when product standardization and market saturation give rise to price competition and cost pressures
Vernon fails to explain why it is profitable for firms to undertake FDI rather than continuing to export from home base, or licensing a foreign firm

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The Pattern Of Foreign Direct Investment
According to the eclectic paradigm, in

addition to the various factors discussed earlier, it is important to consider:
location-specific advantages - that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets
and
externalities - knowledge spillovers that occur when companies in the same industry locate in the same area

Слайд 21

Political Ideology And Foreign Direct Investment
Ideology toward FDI ranges from a

radical stance that is hostile to all FDI to the non-interventionist principle of free market economies
Between these two extremes is an approach that might be called pragmatic nationalism

Слайд 22

The Radical View
The radical view traces its roots to Marxist political

and economic theory
It argues that the MNE is an instrument of imperialist domination and a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries

Слайд 23

The Free Market View
According to the free market view, international production

should be distributed among countries according to the theory of comparative advantage
The free market view has been embraced by a number of advanced and developing nations, including the United States, Britain, Chile, and Hong Kong

Слайд 24

Pragmatic Nationalism
Pragmatic nationalism suggests that FDI has both benefits, such as

inflows of capital, technology, skills and jobs, and costs, such as repatriation of profits to the home country and a negative balance of payments effect
According to this view, FDI should be allowed only if the benefits outweigh the costs

Слайд 25

Shifting Ideology
Recently, there has been a strong shift toward the

free
market stance creating:
a surge in FDI worldwide
an increase in the volume of FDI in countries with newly liberalized regimes

Слайд 26

Benefits And Costs Of FDI
Government policy is often shaped by a

consideration of the costs and benefits of FDI

Слайд 27

Host-Country Benefits
There are four main benefits of inward FDI for a

host
country:
1. resource transfer effects - FDI can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available
2. employment effects - FDI can bring jobs to a host country that would otherwise not be created there

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Host-Country Benefits
3. balance of payments effects - a country’s balance-of-payments account

is a record of a country’s payments to and receipts from other countries.
The current account is a record of a country’s export and import of goods and services
Governments typically prefer to see a current account surplus than a deficit
FDI can help a country to achieve a current account surplus if the FDI is a substitute for imports of goods and services, and if the MNE uses a foreign subsidiary to export goods and services to other countries

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Host-Country Benefits
4. effects on competition and economic growth - FDI in

the form of greenfield investment increases the level of competition in a market, driving down prices and improving the welfare of consumers
Increased competition can lead to increased productivity growth, product and process innovation, and greater economic growth

Слайд 30

Host-Country Costs
Inward FDI has three main costs:
1. the possible adverse effects

of FDI on competition within the host nation
subsidiaries of foreign MNEs may have greater economic power than indigenous competitors because they may be part of a larger international organization

Слайд 31

Host-Country Costs
2. adverse effects on the balance of payments
with the initial

capital inflows that come with FDI must be the subsequent outflow of capital as the foreign subsidiary repatriates earnings to its parent country
when a foreign subsidiary imports a substantial number of its inputs from abroad, there is a debit on the current account of the host country’s balance of payments

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Host-Country Costs
3. the perceived loss of national sovereignty and autonomy
key decisions

that can affect the host country’s economy will be made by a foreign parent that has no real commitment to the host country, and over which the host country’s government has no real control

Слайд 33

Home-Country Benefits
The benefits of FDI for the home country include:
the effect

on the capital account of the home country’s balance of payments from the inward flow of foreign earnings
the employment effects that arise from outward FDI
the gains from learning valuable skills from foreign markets that can subsequently be transferred back to the home country

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Home-Country Costs
The home country’s balance of payments can suffer:
from the initial

capital outflow required to finance the FDI
if the purpose of the FDI is to serve the home market from a low cost labor location
if the FDI is a substitute for direct exports
Employment may also be negatively affected if the FDI is a substitute for domestic production

Слайд 35

International Trade Theory And FDI
International trade theory suggests that home country

concerns about the negative economic effects of offshore production (FDI undertaken to serve the home market) may not be valid

Слайд 36

Government Policy Instruments And FDI
Home countries and host countries use various

policies to regulate FDI

Слайд 37

Home-Country Policies
Governments can encourage and restrict FDI:
To encourage outward FDI, many

nations now have government-backed insurance programs to cover major types of foreign investment risk
To restrict outward FDI, most countries, including the United States, limit capital outflows, manipulate tax rules, or outright prohibit FDI

Слайд 38

Host-Country Policies
Governments can encourage or restrict inward FDI
To encourage inward FDI,

governments offer incentives to foreign firms to invest in their countries
Incentives are motivated by a desire to gain from the resource-transfer and employment effects of FDI, and to capture FDI away from other potential host countries
To restrict inward FDI, governments use ownership restraints and performance requirements

Слайд 39

International Institutions And The Liberalization Of FDI
Until the 1990s, there was

no consistent involvement by multinational institutions in the governing of FDI
Today, the World Trade Organization is changing this by trying to establish a universal set of rules designed to promote the liberalization of FDI

Слайд 40

Implications For Managers
What are the implications of foreign direct investment for

managers?
Managers need to consider what trade theory implies, and the link between government policy and FDI

Слайд 41

The Theory Of FDI
The direction of FDI can be explained through

the location-specific advantages argument associated with John Dunning
However, it does not explain why FDI is preferable to exporting or licensing

Foreign Direct Investment

Содержание

IntroductionForeign direct investment (FDI) occurs when a firm invests directly in

Foreign Direct Investment In The World EconomyThe flow of FDI refers

Trends In FDIThere has been a marked increase in both the

Trends In FDIFigure 7.1: FDI Outflows 1982-2006 ($ billions)

The Direction Of FDIMost FDI has historically been directed at the

The Direction Of FDIFigure 7.3: FDI Inflows by Region ($ billion),

The Direction Of FDIGross fixed capital formation summarizes the total amount

The Direction Of FDIFigure 7.4: Inward FDI as a % of

The Source Of FDISince World War II, the U.S. has been

The Source Of FDIFigure 7.5: Cumulative FDI Outflows ($ billions), 1998-2005

The Form Of FDI: Acquisitions Versus Greenfield InvestmentsMost cross-border investment is

The Shift To ServicesFDI is shifting away from extractive industries and

Theories Of Foreign Direct InvestmentWhy do firms invest rather than use

Why Foreign Direct Investment?Why do firms choose FDI instead of:exporting -

Why Foreign Direct Investment?An export strategy can be constrained by transportation

Why Foreign Direct Investment?Internalization theory (also known as market imperfections theory)

The Pattern Of Foreign Direct InvestmentFirms in the same industry often

The Pattern Of Foreign Direct InvestmentVernon argued that firms undertake FDI

The Pattern Of Foreign Direct InvestmentAccording to the eclectic paradigm, in

Political Ideology And Foreign Direct InvestmentIdeology toward FDI ranges from a

The Radical ViewThe radical view traces its roots to Marxist political

The Free Market ViewAccording to the free market view, international production

Pragmatic NationalismPragmatic nationalism suggests that FDI has both benefits, such as

Shifting Ideology Recently, there has been a strong shift toward the

Benefits And Costs Of FDIGovernment policy is often shaped by a

Host-Country BenefitsThere are four main benefits of inward FDI for a

Host-Country Benefits3. balance of payments effects - a country’s balance-of-payments account

Host-Country Benefits4. effects on competition and economic growth - FDI in

Host-Country CostsInward FDI has three main costs:1. the possible adverse effects

Host-Country Costs2. adverse effects on the balance of paymentswith the initial

Host-Country Costs3. the perceived loss of national sovereignty and autonomykey decisions

Home-Country BenefitsThe benefits of FDI for the home country include:the effect

Home-Country CostsThe home country’s balance of payments can suffer:from the initial

International Trade Theory And FDIInternational trade theory suggests that home country

Government Policy Instruments And FDIHome countries and host countries use various

Home-Country PoliciesGovernments can encourage and restrict FDI:To encourage outward FDI, many

Host-Country PoliciesGovernments can encourage or restrict inward FDITo encourage inward FDI,

International Institutions And The Liberalization Of FDIUntil the 1990s, there was

Implications For ManagersWhat are the implications of foreign direct investment for

The Theory Of FDIThe direction of FDI can be explained through

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