INTERNATIONAL INVESTMENT

ECONOMIC & LEGAL ASPECTS OF

FOREIGN DIRECT INVESTMENT

ECONOMIC ASPECTS (cont.)

FDI DETERMINANTS

Slides by Cao Thi Hong Vinh – FTU 1

1
 OLI Paradigm

Host country determinants

2
Host country determinants

Economic factors

Policy framework

Business facilitation

3
 Economic factors

Resource-seeking

Market-seeking

Efficiency-seeking

Strategic asset-seeking

4
Economic factors (cont.)
Resource-seeking:

Natural resources
- Availability (Importance decreases)
- Others: Cost, Physical infrastructure...

5
Economic factors (cont.)
Market-seeking:
Market size and growth

Why FDI???

6
Economic factors (cont.)
Efficiency-seeking:

Taking advantage of differences in
the availability and costs of production
factors and in other conditions related to
production and markets in different
countries

7
Economic factors (cont.)
Efficiency-seeking (cont.):
- Strategies:
+ Vertical (cost effective

simple vs. complex)
+ Horizontal (economies of
scale)

8
Economic factors (cont.)
Efficiency-seeking (cont.):
- Determinants:
+ Low-cost unskilled labor
+ Created assets
(Knowledge-based resources, Linkage
ability within systems, Infrastructure
facilities)
+ Agglomeration economies
(Externalities)

9
Economic factors (cont.)
Strategic asset-seeking:

10
 Policy framework

National core FDI policies

Other national policies affecting FDI
location

International policy frameworks

11
Policy framework (cont.)
National core FDI policies
+ Regulations and rules governing the
entry and the establishment of
operations
+ Standards of treatment
+ Protection via governing expropriation
and nationalization, fund transfers and
dispute settlement

12
Policy framework (cont.)
Other national policies
+ Trade policy
+ Privatization policy
+ Tax policy
+ Macroeconomic policies
+ Macro-organizational policies

13
Policy framework (cont.)
International policy frameworks

14
 Business facilitation
- FDI promotion
(Image building for countries, Investment
generation and targeting, Investment
facilitation services, After-investment services
and Policy advocacy)
- Incentives and other measures

15