Notes - Foreign Direct Investment (FDI) a....

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Foreign Direct Investment (FDI) a. Causes/motivations i. Locational advantages. These include: (Also see Oatley) 1. Access to natural resources (extractive sector) 2. Access to consumer markets (“horizontal FDI”) a. Reduces transportation costs b. Avoids trade barriers 3. Efficiency considerations (vertical integration) a. Breaking supply chain into various parts (Palmisano) i. Produce according to local comparative advantages ii. Firms will consider labor costs for a given level of productivity, not just overall labor costs iii. Firms can reduce their fixed costs per unit if they produce on a larger scale ii. Market imperfections 1. Firms want to retain control over intangible assets (knowledge, reputation) a. Subcontractors versus FDI i. i.e. Apple won’t give plans of iphone to a subcontractor so it will FDI; Nike will subcontract b/c tech is not as important b. Where specific assets are important, integrate vertically (internalize
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This note was uploaded on 03/19/2008 for the course POLI 150 taught by Professor Mosley during the Fall '08 term at UNC.

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Notes - Foreign Direct Investment (FDI) a....

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