BUS350 - Ch.7


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Unformatted text preview: nations, including the United States, Britain, Chile, and Hong Kong 23 of 51 Pragmatic Nationalism 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 • According to this view, FDI should be allowed only if the benefits outweigh the costs 24 of 51 Shifting Ideology In recent years, there has been a strong shift toward the free market stance creating • a surge in the volume of FDI worldwide • an increase in the volume of FDI directed at countries that have recently liberalized their regimes 25 of 51 Take a 10‐minute Break • Be back in ten minutes. 26 of 51 Benefits and Costs of FDI Question: What are the benefits and costs of FDI? The benefits and costs of FDI must be explored from the perspective of both the • host (receiving) country, and the • home (source) country 27 of 51 Host Country Benefits The main benefits of inward FDI for a host country are: 1. 2. 3. 4. the resource transfer effect the employment effect the balance of payments effect effects on competition and economic growth 28 of 51 Host Country Benefits 1. Resource Transfer Effects FDI can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available 2. Employment Effects FDI can bring jobs to a host country that would otherwise not be created there 29 of 51 Host Country Benefits 3. Balance‐of‐Payments Effects A country’s balance‐of‐payments account is a record of a country’s payments to and receipts from other countries The current account is a record of a country’s export and import of goods and services • A current account surplus is usually favored over a deficit • FDI can help achieve a current account surplus • if the FDI is a substitute for imports of goods and services • if the MNE uses a foreign subsidiary to export goods and services to other countries 30 of 51 Host Country Benefits 4. Effect on Competition and Economic Growth FDI in the form of greenfield investment • increases the level of competition in a market • drives down prices • improves the welfare of consumers Increased competition can lead to • increased productivity growth • product and process innovation • greater economic growth 31 of 51 Host Country Costs There are three main costs of inward FDI 1. the possible adverse effects of FDI on competition within the host nation 2. adverse effects on the balance of payments 3. the perceived loss of national sovereignty and autonomy 32...
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This document was uploaded on 03/05/2014.

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