Foreign Direct Investment Essay

thither has been a rise tide of extraneous Direct Investment (FDI) in the worlds economy. In the past decade businesses rescue turn global imputable to the growthd liberalization, changing capital markets and changing technology. With idle and effective communication systems investment of companies in extraneous countries has been made easy. conflicting direct investment benefits the two countries, the host and the go with investing. A high school percentage of investment made through FDI involves building and fixtures or machinery and equipment. (www. oecd. org) growth profession wind has caused an increase in FDI.Globalization has resulted to broadened markets that call for increase achievement of approximates and services to match the demand. Production levels across the globe have withal risen precipitating large corporations to invest in foreign countries. Corporations have the capital and resources to move their production bases to foreign countries. The service se ctor has too expanded. With technology advancement, skills and expertise have been developed. Corporations have adopted strategies that testament increase active global investment and this is evident in the recent cross-border mergers. buckram corporate profitability has enabled corpo judge invests in the developing countries promoting FDI. Low interest rates and high real estate prices have also led to the down the stairspinning of FDI. With the paltry US dollar value investors with other currencies gained the comparative advantage in investing in foreign countries. General macro economical growth in major economies has been reason behind increased FDI. (www. oecd. org) Countries prefer FDI as a strategy for entering foreign markets to exports and granting foreign entities the right to aim their products under license.Patent disclosure house occur when a local inviolable is given the product under license. It could give important information astir(predicate) invention and i mitation could occur. The MNCs could lose their workers to imitation product companies. done FDI, the MNCs can access larger market and can produce at reduced costs. These will ensure that their profitability levels ar higher. FDI countenance grounds under which future trade barriers can be countered. exporting is constrained by transportation costs and trade barriers like obligations and quotas.Licensing hinders the company from direct control and this creates loopholes that lead to reduced profitability. (Kreinin M. and Plummer M, 2002) Firms based in the equal industry can undertake foreign direct investment at the same time when the local demand in the new field of study can support local supply. They can also locate much(prenominal) firms when there is price competition and cost pressure. rough scopes have a comparative advantage over others and this makes them more party favorable. They could be endowed with resources that the investors turn using their technologica l and managerial capabilities.They reduce their costs as regional manufacturing plants serve regional markets. Political ideology influences government policy towards FDI. Some countries view MNCs as tools of imperialist domination out to exercise their resources. MNCs exploits the developing countries and creates dependency in terms of jobs and technology. They contri exclusivelye to their move backwardness, as they do non give back valuable create in return to the resources they exploit. Developing countries provide cheap labor and nude materials. Another view is the comparative advantage where countries benefit from FDI.This view is estimable as host countries allow FDI and gain from it. They acquire products they do not produce and at lower costs. In this view countries produce what they can at least cost. Governments can restrict or promote FDI. If a government protects its domestic industries producing the same output as a foreign corporation, FDI will be discouraged. (A nderson K. and Blackhurst R, 1993) Governments can make policies on the location of transnational corporations (MNCs) that are favorable and that would increase FDIS.They can also promote or put in place proper infrastructure like good transportation systems, education and transparency all of which works to encourage FDI. recreation and stability are very important factors in influencing FDI. Government must therefore ensure that they maintain law, and order political unrest deters FDI. Grants subsidies and revenue enhancement concessions encourage inward FDI. There are economic and political agreements that favor regional economic integration like EU, NAFTA and MERCOSUR all of which have implications for business. scotch integration between nations could be though preferential trade area (PTA) where countries are offered tariff reduction and discrimination is reduced to member countries. impoverished trade area (FTA) could also be offered where countries go through tariffs bet ween themselves but maintain their own external tariff on imports. Custom matrimonys eliminate tariffs between themselves but set a common external tariff for instance the EU. Countries could also adopt a common market, economic due north or monetary union level. (Kreinin M.and Plummer M, 2002) stinting arguments for economic integration. There is increased trade as countries produce what they have comparative advantage in. Foreign supply is reduced and trade diversity is promoted leading to economic growth. constituent countries enjoy the economies of scale Political argument for economic integration is that it promotes peace and stability among member countries. Arguments against economic integration. Dumping of products can occur due to the eradication of barriers. Some countries tend to benefit more than others.Countries may notion as they are losing their sovereignty, which is their sense of pride. (Hoekman B. and Schiff M, 2002. ) The European Union is an economic union w here member countries permit free movement of good, services and people and it uses a common currency it was initially known as the European Economic Community or common market. The North America Free mickle Agreement is a free trade agreement of Canada, US and Mexico. It eliminates barriers to trade and promotes fair competition and increased investment opportunities. MERCOSUR- comprises of Argentina, Brazil, Paraguay and Uruguay.It transformed from a use union to a common market in 2006. The Asia pacific economic cooperation comprises 21 members. It was formed in 1989 through informal dialogue it promotes trade and investment and economic co-operation. The future of this great economic integration is promising. Businesses that are inherent in regional economic integration agreements will prosper if conditions in their regions are favorable. They will respond to the forces of demand and supply. Competition will be high and this will ensure that quality products are produced.Refe rences pecker M. Suranovic. Trends and recent developments in FDI. Retrieved on 22nd January 2008 from http//www. oecd. org/dataoecd/62/43/38818788. pdf. Anderson K. and Blackhurst R. 1993. regional desegregation and the Global Trading System, London and New York, Harvester wheat sheafs. Hoekman B. and Schiff M. 2002. Benefiting from regional integration. In Hoekman B. , Mattoo A. & English P. Development, Trade, and the WTO A Handbook, Washington, DC. World Bank. Kreinin M. and Plummer M. 2002. Economic Integration and Development Has Regionalism Delivered for Developing Countries? Cheltenham, Edward Elgar.