COMPARATIVE EXAMPLES VS SET THESIS

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 foreign- 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.

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, human, or natural capital) or "intensively" by using the 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. 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 requires economic development.

TRENDS IN FDI?  Flow and stock increased in the last 20 years  In spite of decline of trade barriers, FDI has grown more rapidly than world trade because 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

FDI FLOW BY REGION

DOES FACT = THEORY?  Gross 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???

COSTS OF FDI TO HOST COUNTRIES  Adverse effects on competition  Adverse effects on the balance of payments After the initial capital inflow there is normally a subsequent outflow of earnings

 Foreign subsidiaries could import a substantial number of inputs  National sovereignty and autonomy 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

THE RADICAL VIEW  Marxist view: MNEs exploit less-developed host countries Extract profits Give nothing of value in exchange Instrument of domination, not development Keep less-developed countries relatively backward and dependent on capitalist nations for investment, jobs, and technology  By the end of the 1980s radical view was in retreat Collapse of communism Bad economic performance of countries that embraced the radical view Strong economic performance of countries who embraced capitalism rather than the radical view

THE FREE MARKET VIEW  Nations 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

LEGAL INSTITUTIONS AND FDI  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 development  by protecting private rights, especially the property and contract rights of foreign investors  By creating the legal foundations for market-oriented reform GOALS  : Investor experience suggests that:  A conventional program of market-oriented legal reform is NOT 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?