BUS350 - Ch.7

Thetheoryoffdihasimplicationsforstrategic

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Unformatted text preview: may also benefit in the form of lower prices 39 of 51 Government Policy Instruments and FDI FDI can be regulated by both home and host countries Governments can implement policies to 1. encourage FDI 2. discourage FDI 40 of 51 Home Country Policies 1. Encouraging Outward FDI Many nations now have government‐backed insurance programs to cover major types of foreign investment risk • This type of policy can encourage firms to undertake FDI in politically unstable nations • Many countries also have eliminated double taxation of foreign income • Many host nations have relaxed restrictions on inbound FDI 41 of 51 Home Country Policies 2. Restricting Outward FDI Virtually all investor countries, including the United States, have exercised some control over outward FDI from time to time • Some countries manipulate tax rules to make it more favorable for firms to invest at home • Countries may restrict firms from investing in certain nations for political reasons 42 of 51 Host Country Policies 1. Encouraging Inward FDI Governments offer incentives to foreign firms to invest in their countries • Incentives are motivated by a desire to gain from the resource‐transfer and employment effects of FDI, and to capture FDI away from other potential host countries 43 of 51 Host Country Policies 2. Restricting Inward FDI Ownership restraints and performance requirements (controls over the behavior of the MNE’s local subsidiary) are used to restrict FDI • Ownership restraints • exclude foreign firms from certain sectors on the grounds of n...
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This document was uploaded on 03/05/2014.

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