Test 2 cheat sheet

Test 2 cheat sheet - Foreign direct investment(FDI occurs...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
- 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 - There are two forms of FDI: A greenfield investment (the establishment of a wholly new operation in a foreign country), Acquisition or merging with an existing firm in the foreign country - There are two ways to look at FDI: The flow of FDI refers to the amount of FDI undertaken over a given time period, 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 / Inflows of FDI are the flows of FDI into a country. Flow and stock of FDI in the world economy has increased over the last 20 years. - --- When a firm takes the same activity at the same value-chain stage from its home country and duplicates it in a host-country. When a firm moves upstream or downstream in different value chain stages in a host country through FDI. OWNERSHIP ADVANTAGES : reduce dissemination, control over foreign ops, tacit knowledge Direct is the key word in FDI. Direct ownership provides combination of equity ownership rights and management control rights. Fight foreign liability LOCATION ADVANTAGES : Some locations possess geographical features that are difficult to match. . Location advantage can arise from agglomeration – the clustering of economic activities in certain locations. Results from: Knowledge spillover, Industry demand for skilled workers, Industry demand that facilitates a pool of specialized suppliers and buyers in a region. Location advantage does not entirely overlap with country-level advantages. Refers to advantage that firm obtains when operating in a specific location due to firm-specific resources. When one firm enters a foreign country through FDI, competitors are likely to increase FDI in order to acquire or neutralize location advantages. 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 The free market view argues that international production should be distributed among countries according to the theory of comparative advantage The pragmatic nationalist view is 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. Benefits of INWARD FDI : benefits of inward FDI for a host country are the resource transfer effect, the employment effect, the balance of payments effect, effects on competition and economic growth Costs of INWARD FDI : the possible adverse effects of FDI on competition within the host nation, adverse effects on the balance of payments, the perceived loss of national sovereignty and autonomy Benefits of FDI to 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
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/12/2012 for the course ACCT 211 taught by Professor Kamlet during the Spring '08 term at Binghamton.

Page1 / 2

Test 2 cheat sheet - Foreign direct investment(FDI occurs...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online