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Brad-faber-Outline Foreign Direct Investment
Brad-faber-Outline Foreign Direct Investment
Brad-faber-Outline Foreign Direct Investment
Foreign investment that establishes a lasting interest in or effective management control over an enterprise. Foreign direct investment can include buying shares of an enterprise in another country, reinvesting earnings of a foreignforeign- owned enterprise in the country where it is located, and parent firms extending loans to their foreign affiliates. International Monetary Fund (IMF) guidelines consider an investment to be a foreign direct investment if it accounts for at least 10 percent of the foreign firm's voting stock of shares. However, many countries set a higher threshold because 10 percent is often not enough to establish effective management control of a company or demonstrate an investor's lasting interest.
http://www.worldbank.org/depweb/ english/beyond/global/glossary. html
Economic Growth
Quantitative change or expansion in a country's economy. Economic growth is conventionally measured as the percentage increase in gross domestic product (GDP) or gross national product (GNP) during one year. Economic growth comes in two forms: an economy can either grow "extensively" by using more resources (such as physical, physical, human, human, or natural capital) or "intensively" by using the capital) same amount of resources more efficiently (productively). When economic growth is achieved by using more labor, it does not result in per capita income growth (see Chapter 4). But when economic growth is achieved through more productive use of all resources, including labor, it results in higher per capita income and improvement in people's average standard of living. Intensive economic growth living. development. requires economic development.
http://www.worldbank.org/depweb/ english/beyond/global/glossary. html
Trends in FDI
and stock increased in the last 20 years In spite of decline of trade barriers, FDI has grown more rapidly than world trade because
Flow
Businesses fear protectionist pressures FDI is seen a a way of circumventing trade barriers Dramatic political and economic changes in many parts of the world Globalization of the world economy has raised the vision of firms who now see the entire world as their market
most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in other markets
The US has been the favorite target for FDI inflows
While
developed nations still account for the largest share of FDI inflows, FDI into developing nations has increased
Most recent inflows into developing nations have been targeted at the emerging economies of South, East, and Southeast Asia
fixed capital formation summarizes the total amount of capital invested in factories, stores, office buildings, etc.
SO
This makes FDI a crucial determinant factor of increased future growth rate of an economy
RIGHT???
After the initial capital inflow there is normally a subsequent outflow of earnings Foreign subsidiaries could import a substantial number of inputs
National
Some host governments worry that FDI is accompanied by some loss of economic independence resulting in the host countrys economy being controlled by a foreign corporation
Radical View
Pragmatic Nationalism
Free Market
specialize in goods and services that they can produce most efficiently Resource transfers benefit and strengthen the host country Positive changes in laws and growth of bilateral agreements attest to strength of free market view All countries impose some restrictions on FDI
Trinidad and Tobago, a recipient of substantial FDI inflows in its natural gas
http://ideas.repec.org/p/dgr/unuint/200307.html Lou Anne A. Barclay
FDI inflows in its natural gas industry for the last decade FDI-assisted development only occurs when FDIgovernments in less-developed economies pursue lesscredible, selective intervention policies
Pragmatic Nationalism
has benefits and costs Allow FDI if benefits outweigh costs
FDI
Block FDI that harms indigenous industry Court FDI that is in national interest
Tax
breaks Subsidies
Regional effects of FDI in Central Europe (Czech Republic, Hungary, Poland and Slovakia) in the 1990s. Defining FDIs role in regional economic transformations
Intensification of Uneven Development Development of a Dual Economy Failure to Develop Linkages with Local and Regional Economies Contributionto Increased Regional Economic Instability
Petr Pavlnek
http://eur.sagepub.com/cgi/reprint/11/1/47.pdf#search=%22FDIhttp://eur.sagepub.com/cgi/reprint/11/1/47.pdf#search=%22FDIEconomic%20Development%22
Debate over relationship between legal institutions and foreign investment flows
Traditional/orthodox view: legal institutions play a crucial role in the process of market-oriented marketdevelopment by protecting private rights, especially the property and contract rights of foreign investors By creating the legal foundations for market-oriented marketreform
GOALS
A conventional program of market-oriented legal reform is marketNOT a prerequisite for foreign investment
Try to Identify Why!
Legal institutions play a small, if any, role in determining the initial decision to invest WHY???
The form and content of useful law, as well as the significance of law generally, seem to depends on the details of the project and the setting
What are the constants that can be identified in Success stories?