How Has A Shift Toward Democratic Political Institutions And Free Market Economies Affected Fdi? (2023)

1. [PDF] Foreign Direct Investment for Development | OECD

  • Developing countries, emerging economies and coun- tries in transition have come increasingly to see FDI as a source of economic development and modernisation, ...

2. [PDF] Foreign Direct Investment - Uniba

  • • the general shift toward democratic political institutions and free market economies has encouraged FDI. • the globalization of the world economy is having ...

3. [DOC]

  • The general shift toward democratic political institutions and free market economies that we discussed in Chapter 3 has encouraged FDI. Across much of Asia ...

4. [PPT] Chapter 7

  • Missing: affected | Show results with:affected

5. [PDF] Political Competition and the Regulation of Foreign Direct ...

  • This dissertation examines the variation of foreign direct investment (FDI) regulations. Why do some countries restrict the entry and operations of MNEs while.

6. 2022 Investment Climate Statements: Mexico - Department of State

7. Investment and Transnational Corporations

  • As a result of these drawbacks, FDI tended to hinder development and inhibit economic growth (Hymer 1976). On a political level, TNCs were said to exacerbate ...

  • "Investment and Transnational Corporations" published on by Oxford University Press.


  • adjustment norms (transforming economic and political structures ... It may indicate increasing global integration with a shift from FDI oriented toward the ...

9. [PDF] Does Economic Freedom Enhance the Impact of Foreign Direct ...

  • ... shift of the emphasis among policymakers in the developing countries towards attracting more FDI. ... How Does Political Instability Affect Economic Growth?

10. The Determinants of Foreign Direct Investment in Latin America

  • Mar 3, 2008 · There is little doubt that during the most recent period of economic reform, which has been dominated by market-oriented policies, FDI has ...

  • Foreign direct investment (FDI) has played a critical role in the modernization of Latin American economies, yet the factors explaining why global firms enter the region remain the subject of debate.1 There is little doubt that during the most recent period of economic reform, which has been dominated by market-oriented policies, FDI has gained a preeminent role as a provider of foreign capital, technology, and employment (Cuadros, Orts, and Alguacil 2004). There is not a single Latin American country, including Cuba, that is not actively wooing foreign firms to open new subsidiaries or to expand existing operations in their economies. Scholars, however, differ on the determinants of FDI inflows. Some credit the renewed emphasis on deregulation and liberalization of markets. Others claim that cost-sensitive firms shift their operations to expand their margins in highly competitive global markets and that Latin America has relatively low factor costs. The promise of exploiting lucrative opportunities leads firms to invest in the region, which business analysts have regarded [End Page 55] for the past decade as an emerging area, second only to East Asia and India. Analysts of government bureaucracies and political institutions claim that foreign firms are well aware of the different levels of good governance across the region and favor those states that have a proven track record of protecting property rights. In short, FDI responds to different dimensions of cost, risk, and opportunity. But what combination of factors best explains FDI flows to Latin America in the past two decades?

11. [PDF] Essays on the Political Economy of Foreign Direct Investment

  • How does a democratic transition affect FDI policy-making in Taiwan? In ... preferences toward free trade, which is interpreted as evidence to support the ...

12. 4 Foreign Direct Investment: The Role of Joint Ventures and ... - IMF eLibrary

  • One is simply a desire to protect sovereignty: to ensure that foreign firms will not control key decisions in the economy. This desire is particularly strong in ...

  • Abstract This paper will discuss the policies that require foreign investors to enter into joint ventures with local firms, and the institutions used by host countries to promote, screen, and service foreign direct investment. These are related topics because the kinds of institutions that host countries need to put in place to deal with foreign investors will depend on the policies they are trying to implement. If the host country does not intend to screen foreign investors, or require them to enter into joint ventures with local investors, there may be no need to establish a procedure or an institution to deal with foreign investment. Brazil, for example, has had a very open attitude toward foreign direct investment, and therefore has not established a specific institution to regulate an investment approval process.

13. 2. Policies for improving FDI impacts on productivity and innovation

  • The FDI Qualities Indicators show that productivity gaps between foreign and domestic firms exhibit considerable variation across OECD and developing economies, ...

  • OECD's dissemination platform for all published content - books, podcasts, serials and statistics

14. [PPT] (Textbook) Behavior in Organizations, 8ed (A. B. Shani)

  • the general shift toward democratic political institutions and free market economies has encouraged FDI; the globalization of the world economy is having a ...

15. International Business - Topic Discussion Notes - learnOnline

  • 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 ...

  • Introduction to Topic 4 Discussion Notes The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes. Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly.  In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future. Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.  Chapter 8: Foreign Direct Investment    Learning objectives  Recognize current trends regarding foreign direct investment (FDI) in the world economy.  Explain the different theories of FDI.  Understand how political ideology shapes a government’s attitudes towards FDI.  Describe the benefits and costs of FDI to home and host countries.  Explain the range of policy instruments that governments use to influence FDI. Identify the implications for managers of the theory and government policies associated with FDI.  The focus of this chapter is foreign direct investment (FDI). The growth of foreign direct investment in the last 25 years has been phenomenal. FDI can take the form of a foreign firm buying a firm in a different country, or deciding to invest in a different country by building operations there.   With FDI, a firm has a significant ownership in a foreign operation and the potential to affect managerial decisions of the operation.   The goal of our coverage of FDI is to understand the pattern of FDI that occurs between countries, and why firms undertake FDI and become multinational in their operations as well as why firms undertake FDI rather than simply exporting products or licensing their know-how.  The opening case describes Volkswagen’s greenfield investment in Russia and the effect of changing oil prices on its profitability. The closing case explores the flow of FDI into Nigeria, particularly as the country began to transition toward a more stable, democratic form of government in the early twenty-first century. Today, Nigeria is one of the leading recipients of FDI in sub-Saharan Africa, although the country still faces a number of obstacles to economic development.    LECTURE OUTLINE  The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.”  The following provides a brief overview of each Power Point slide.  Slides 8-2 and 8-3 What Is Foreign Direct Investment? 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.  Another Perspective: Each year Fortune magazine publishes a list of the 500 largest global corporations in the world.  Fortune calls its list the "Global 500."  This list can be accessed at {}.  The article contains an excellent discussion of the role of global firms in the world economy.                   FDI can take the form of a greenfield investment, in which a wholly new operation is established in a foreign country, or it can take place via acquisitions or mergers with existing firms in the foreign country.  Another Perspective: Another web site that provides an excellent discussion of the role of multinational corporations in the world economy is available at {}.  The flow of FDI refers to the amount of FDI undertaken over a given time period, while 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, and inflows of FDI are the flows of FDI into a country. Slides 8-4 through 8-8 Trends in FDI There has been a marked increase in both the flow and stock of FDI in the world economy over the past 30 years.  While the United States remains a top destination for FDI flows, South, East, and Southeast Asia, and particularly China, are now seeing an increase of FDI inflows, and Latin America is also emerging as an important region for FDI.  Another Perspective: Tanzania has recently been named one of Africa’s top FDI hotspots. To learn more about this trend go to {}. Slides 8-9 and 8-10 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.  Slides 8-11 and 8-12 The Form of FDI: Acquisitions Versus Greenfield Investments Most cross-border investment is in the form of mergers and acquisitions rather than greenfield investments. Slides 8-13 and 8-14 Why Choose Foreign Direct Investment? Why do firms choose FDI instead of exporting or licensing?  Internalization theory (also known as market imperfections theory) suggests that licensing has three major drawbacks. Slide 8-15 Think Like a Manager: Exporting, Licensing, or FDI? Slides 8-16 and 8-17 The Pattern of Foreign Direct Investment 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.  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 Slides 8-18 and 8-19 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.  The radical view 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.  According to the free market view, international production should be distributed among countries according to the theory of comparative advantage.   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.  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       Slides 8-20 and 8-21 Host Country Benefits of FDI Government policy is often shaped by a consideration of the costs and benefits of FDI.  There are four main benefits of inward FDI for host countries: resource transfer effects; employment effects; balance of payments effects, and effects on competition and growth. Slides 8-22 and 8-23 Host Country Costs There are three mains costs from inward FDI for the host country: the possible adverse effects of FDI on competition within the host nation; adverse effects on the balance of payments; and the perceived loss of national sovereignty and autonomy. Slide 8-24 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; and the gains from learning valuable skills from foreign markets that can subsequently be transferred back to the home country. Slides 8-25 and 8-26 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; and if the FDI is a substitute for direct exports.  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. Slides 8-27 and 8-28 Government Policy Instruments and FDI Home countries and host countries use various policies to regulate FDI.  Another Perspective: The World Bank offers information on the business environment in different countries.  To explore the information, go to {}, click on “countries”, and select the country in question.  Governments can both encourage and restrict FDI.  To encourage inward FDI, governments offer incentives to foreign firms to invest in their countries, while they restrict inward FDI through ownership restraints and performance requirements. Slide 8-29 International Institutions and the Liberalization of FDI The World Trade Organization is trying to establish a universal set of rules designed to promote the liberalization of FDI. Slides 8-30 through 8-32 Implications for Managers Managers need to consider what trade theory implies, and the link between government policy and FDI.  The direction of FDI can be explained through the location-specific advantages argument associated with John Dunning.         A host government’s attitude toward FDI is an important variable in decisions about where to locate foreign production facilities and where to make a foreign direct investment.  Chapter 9: Regional Economic Integration   Learning objectives  Describe the different levels of regional economic integration. Understand the economic and political arguments for regional economic integration.  Understand the economic and political arguments against regional economic integration.  Explain the history, current scope, and future prospects of the world’s most important regional economic agreements. Understand the implications for business that are inherent in regional economic integration agreements.  This chapter discusses regional economic integration, agreements among countries within a geographic region to achieve economic gains from the free flow of trade and investment among themselves. There are five levels of economic integration. In order of increasing integration, they include free trade area, customs union, common market, economic union, and full political union.  Integration is not easily achieved or sustained. Although integration brings benefits to the majority, it is never without costs for the minority. Concerns over sovereignty often slow or stop integration attempts.  The creation of single markets in the EU and North America means that many markets that were formerly protected from foreign competition are now more open. This creates major investment and export opportunities for firms within and outside these regions.  The free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes make it possible for firms based in a free trade area to realize potentially enormous cost economies by centralizing production in those locations within the area where the mix of factor costs and skills is optimal.  The opening case describes the growth of the Mexican auto industry due to a wave of foreign direct investment spurred by regional trade agreements, such as NAFTA. The closing case discusses the complicated case of Mexican tomato growers, U.S. tomato growers, and the pricing structure that was in place once NAFTA went into effect.  LECTURE OUTLINE  The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide.  Slide 9-2   Introduction Regional economic integration refers to agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. Despite the rapid spread of regional trade agreements designed to promote free trade, there are those who fear that the world is moving toward a situation in which a number of regional trade blocks compete against each other. In this scenario of the future, free trade will exist within each bloc, but each bloc will protect its market from outside competition with high tariffs. Slides 9-3 through 9-6 Levels of Economic Integration The five levels of economic integration are: free trade area, customs union, common market, economic union, and political union.  The most enduring free trade area in the world is the European Free Trade Association. EFTA currently joins four countries--Norway, Iceland, Liechtenstein, and Switzerland. Other free trade areas include the North American Free Trade Agreement (NAFTA).  Another Perspective: A site with information and additional links on NAFTA is available at {}.  The site includes downloadable power point presentations on the benefits of NAFTA.  Another Perspective: To find out more about EFTA, go to {}, and click on “EFTA AELE.”  From here you can click on several icons to get quick facts, more in-depth reports, information on the European Economic Area, and many other issues related to EFTA.  Customs unions around the world include the current version of the Andean Pact (between Bolivia, Colombia, Ecuador, and Peru).  Currently, Mercosur, the South America grouping that includes Brazil, Argentina, Paraguay, and Uruguay, is aiming to eventually establish itself as a common market. The European Union (EU) is an economic union, although an imperfect one since not all members of the EU have adopted the euro, the currency of the EU, and differences in tax rates across countries still remain. Slide 9-7 The Economic and Political Case for Integration  Regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as the WTO.   The political case for integration has two main points: (1) by linking countries together, making them more dependent on each other, and forming a structure where they regularly have to interact, the likelihood of violent conflict and war will decrease, and (2) by linking countries together, they have greater clout and are politically much stronger in dealing with other nations. Slide 9-8 Impediments to Integration  There are two main impediments to integration: although a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose  concerns over national sovereignty  Whether regional integration is in the economic interests of the participants depends upon the extent of trade creation as opposed to trade diversion.  Trade creation occurs when low cost producers within the free trade area replace high cost domestic producers.  Trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers.  A regional free trade agreement will only make the world better off if the amount of trade it creates exceeds the amount it diverts. Slides 9-9 and 9-10 Regional Economic Integration in Europe  There are two trade blocks in Europe: the European Union (EU) the European Free Trade Association  The EU is by far the more significant, not just in terms of membership, but also in terms of economic and political influence in the world economy.  Slides 9-11 and 9-12 Evolution of the European Union   The EU is the product of two political factors: devastation of two world wars on Western Europe and the desire for a lasting peace European nations’ desire to hold their own on the world’s political and economic stage.  The forerunner of the EU was the European Coal and Steel Community, which had the goal of removing barriers to trade in coal, iron, steel, and scrap metal formed in 1951.  The EEC was formed in 1957 at the Treaty of Rome.  While the original goal was for a common market, progress was generally very slow.  Another Perspective: The EU web site is {}.  The site contains a broad array of information about the historical role and current activities of the EU in the global economy.  The Single European Act called for the removal of border controls, mutual recognition of standards, open public procurement, a barrier free financial services industry, no currency exchange controls, free and open freight transport, and freer and more open competition.  Slide 9-13   Political Structure of the European Union  The main institutions of the EU are: the European Council (ultimate controlling authority within the EU) the European Commission (responsible for implementing aspects of EU law and monitoring member states to ensure they are complying with EU laws) the European Parliament (debates legislation proposed by the commission and forwarded to it by the council) the Court of Justice (the supreme appeals court for EU law). Slides 9-14 and 9-15 The Establishment of the Euro    The Treaty of Maastricht, signed in 1991, committed the EU to adopt a single currency, the euro, by January 1, 1999.  The euro is used by 17 of the 27 member states. It was never adopted by Britain. More recently, with the Brexit vote (UK exit from the EU) in 2016, the future for the EU seems uncertain. By adopting the euro, the EU has created the second largest currency zone in the world after that of the U.S. dollar.   Since its establishment January 1, 1999, the euro has had a volatile trading history with the U.S. dollar.  Initially, the currency fell in value relative to the dollar, but has since strengthened.  Another Perspective: The European Union has a web page devoted to the euro {}.  Students can explore the site and click on the pages to see pictures of the coins and notes, the advantages of participating in the euro zone, and frequently asked questions about the euro.   Another Perspective: The European Central Bank maintains a web site with current information on the euro.  The site is available at {}. Another Perspective: At one point in time, joining the Euro Zone had been the goal of many Eastern European countries.  Now however, given the recent financial crises that is threatening the future of the euro, many are rethinking their plans.  To learn more, go to {}. Slide 9-16 Enlargement of the European Union  Several countries, particularly from Eastern Europe, have applied for membership in the EU.  In December of 2002, the EU formally agreed to accept the applications of 10 countries, and they joined on May 1, 2004.  Today, membership is up to 28 countries, with Croatia joining in July of 2013. And of course more recent, the exit of the UK, known as Brexit! Slides 9-17 and 9-18 Regional Economic Integration in the Americas The North American Free Trade Agreement (NAFTA) is the most significant attempt at economic integration in the Americas.  Other efforts include the Andean group and Mercosur.  In addition, there are plans to establish a hemisphere wide Free Trade Area of the Americas (FTAA.) Slides 9-19 through 9-22 The North American Free Trade Agreement  The free trade agreement between the United States, Canada, and Mexico became law January 1, 1994.  Another Perspective: More on NAFTA can be found at {}. Following approval of NAFTA by the U.S. Congress a number of other Latin American countries indicated their desire to eventually join NAFTA. Currently the governments of both Canada and the U.S. are adopting a wait and see attitude with regard to most countries.   Another Perspective: Many organizations are anxious to take advantage of the opportunities offered by NAFTA.  The NAFTA Register {}is a directory of export management companies, export service providers, and trading companies that want to profit from NAFTA by helping buyers and selling take advantage of NAFTA related opportunities. Slide 9-23 Think Like a Manager: NAFTA Slide 9-24 The Andean Community   The Andean Pact, originally formed in 1969, was based on the EU model, but was far less successful in achieving its stated goals.  In 1990, the Andean Pact was re-launched, and now operates as a customs union.  Another Perspective: To see new developments with the Andean Community go to {}. Slide 9-25 Mercosur  In some industries Mercosur is trade diverting rather than trade creating, and local firms are investing in industries that are not competitive on a worldwide basis.  Another Perspective: Mercosur's website, which includes a broad array of useful information, can be accessed at {}.  Slide 9-26 Central American Trade Agreement Market and CARICOM  There are two other trade pacts in the America, the Central American Trade Market and CARICOM, although neither has made much progress as yet. Slide 9-27 Free Trade of the Americas  If the FTAA is established, it will have major implications for cross-border trade and investment flows within the hemisphere. The FTAA would create a free trade area of 850 million people. Another Perspective: Additional information on the Free Trade of the Americas can be found at {}. Slide 9-28 Regional Economic Integration In Asia  Several efforts have been made to integrate in Asia One of the most successful is the Association of Southeast Asian Nations (ASEAN)  Slides 9-29 and 9-30 Association of Southeast Asian Nations   Formed in 1967, ASEAN currently includes Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and, most recently, Vietnam, Myanmar, Laos, and Cambodia.  The basic objectives of ASEAN are to foster freer trade between member countries and to achieve some cooperation in their industrial policies. Slides 9-31 and 9-32 Asia-Pacific Cooperation  APEC currently has 21 members including such economic powerhouses as the United States, Japan, and China.  The stated aim of APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.                                                                      Another Perspective: For more on APEC, go to its web site at {}.  Slide 9-33 Regional Trade Blocks in Africa  There are nine trade blocs on the African continent however progress toward the establishment of meaningful trade blocs has been slow.    Slide 9-34 Implications for Managers  The EU and NAFTA currently have the most immediate implications for business.  The greatest implication for MNEs is that the free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes, makes it possible for firms to realize potentially enormous cost economies by centralizing production in those locations where the mix of factor costs and skills is optimal.  Through specialization and shipping of goods between locations, a much more efficient web of operations can be created. Just as the emergence of single markets in the EU and North America creates opportunities for business, so it also presents a number of threats. Copyright © 2017 McGraw-Hill Education.  Adapted for MBA BUSS 5251 International Business for the purpose of individual study and course preparation.

Top Articles
Latest Posts
Article information

Author: Pres. Carey Rath

Last Updated: 10/28/2023

Views: 6307

Rating: 4 / 5 (61 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Pres. Carey Rath

Birthday: 1997-03-06

Address: 14955 Ledner Trail, East Rodrickfort, NE 85127-8369

Phone: +18682428114917

Job: National Technology Representative

Hobby: Sand art, Drama, Web surfing, Cycling, Brazilian jiu-jitsu, Leather crafting, Creative writing

Introduction: My name is Pres. Carey Rath, I am a faithful, funny, vast, joyous, lively, brave, glamorous person who loves writing and wants to share my knowledge and understanding with you.