Foreign trade
Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). (http://www.yourarticlelibrary.com)
It is a trade between two or more countries and we can separate into three parts.
• Import- Affluent countries import resources and commodities when they find comparative advantages in sourcing from foreign locations. (Holt, Wigginton, 2002)
• Export – involves selling domestically produced products in foreign market through brokers or overseas distribution centres. (Holt, Wigginton, 2002)
• “Entrepot”– import goods for re-export after previous operations
Every country has lack of any resource and due to this fact they have to trade goods etc. with other countries worldwide. Nowadays during days of globalization is demand for goods and services increasing. This natural trade is here for centuries, but now we have better logistics and faster shipments and cooperation between countries is easier.
Problems that traders are facing are in general different currencies, law systems, regulations and somewhere trade barriers.
Foreign direct investment (FDI)
Investment from one country into another (normally by companies rather than governments), that involves establishing operations or acquiring tangible assets, including stakes in other businesses. (Financial Times) FDI means investment of foreign assets into domestic structures, organizations and equipment. It’s a key element in economic integration and creates direct, stable and long- lasting links between economies.
OECD defined accepted threshold for FDI relationship as at least 10 % or more of voting stock or ordinary shares that fo...
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...in the hands of Procter & Gamble
Positive impact of FDI is restructuring on supply side of economy, increased export performance and non- debt financing of the current account deficit new job opportunities and revenues from privatization for the government.
Negative impact is Repatriation of profits abroad, or subsequent outflow of FDI from countries threaten the country's external balance. FDI inflows surge exchange rate deviates from the equilibrium and at least FDI includes tax breaks as well as direct subsidies from the state budget. (Srholec 2004)
Conclusion
Main difference is that foreign trade is about selling, purchasing products or services briefly. It is just transaction, on the other hand, FDI are long-term processes where company invest by capital to foreign companies or businesses. In FDI company tries to invest and settle down in foreign market.
Trade is the most common form of transferring ownership of a product. The concepts are very simple, I give you something (a good or service) and you give me something (a good or service) in return, everyone is happy. However, trade is not limited to two individuals. There are trades that happen outside national borders and we refer to that as international trading. Before a country does international trading, they do research to understand the opportunity costs and marginal costs of their production versus another countries production. Doing this we can increase profit, decrease costs and improve overall trade efficiency. Currently, there are negotiations going on between 11 countries about making a trade agreement called the Trans-Pacific
Trade, of course, is only part of a larger network of relationships between our two countries. This network evolves in response to many complex influences, and exporters need to consider how our two countries' ever-expanding, ever-changing relationships will affect their activities. To take just a few examples:
Zheng, P. (2009). A comparison of FDI determinants in China and India. Thunderbird International Business Review, 51(3), 263-279. doi:10.1002/tie.20264
...ts of many low-income states do not have the resources to supply these goods. This creates a bottleneck effect that deters private investment- thus foreign aid to infrastructure (economic aid) can have a positive impact on FDI inflows.
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). International trading has its comparative advantages. Gains arise when a nation specializes in production and exchanges output with a trading partner, Meaning each nation should produce goods they are the best at making. When that happens the transaction leads to lower cost of production and maximizes the combined output of all nation involved. For example California shouldn’t try to produce and sell coconuts, it would be too expensive because they don’t have the right climate, where else in Indonesia it would be cheaper because it has the right climate for
International trade has become one of the most important things to do for the economy of a country. There are two ways to do the agreement, bilateral trade and multilateral trade. The first one, bilateral trade is the trade happens between two people, groups or countries. The trade can be in political, economic, or military matters. On the other hand, multilateral trade is a free trade between two or more countries at the same time. This trade aim to promote, enhance, and regulate trade in equal manner.
By definition foreign direct investment is the acquisition of tangible assets such as machinery, land and factories; this type of investment are often between two companies- usually multinationals from different countries. FDI is one of the benefits of globalisation as it has a direct impact on aggregate demand having a follow on effect on technology, job opportunities and increased intellectual property owned by countries. In this essay I will discuss some of the factors that affect a country’s disposition to gaining foreign direct investment.
Trading happens all over the world. Countries trade with each other which creates peace and eliminates war. Trade gives us fresher tastier food, new technology and resources we may not have. Such as Canada and china, Canada will trade resources that we have and they don’t for things they we don’t have and they do, such as oil. Trade fuels economic growth and supply’s jobs for millions of people around the world. We get all the toys clothing and elect...
In conclusion, it is clear that there is a tradeoff between the benefits and costs related to foreign direct investment. It is therefore means that it would be up to the country’s government to decide which foreign direct investments will fully benefit the country’s economy and which ones would not. Although it may take a while for foreign direct investment to be fully set up in a country, it will in the long run leave a permanent imprint (Moran 2011, 45)
The main concept discussed in this essay is foreign direct investment. FDI is, according to the OECD, “a category of cross-border investment made by a resident entity in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.” Firms invest in foreign economies in order to exploit their particular advantages and FDI is the preferred process, as opposed to licensing or agreements and exports. The advantages that firms often possess are patented technology, managerial skills, marketing skills and brand names.
Some researchers focused upon the impact of FDI on the different sectors of the economy like agriculture sector, industrial sector, telecommunication, etc., some researchers paid attention to develop different mathematical and statistical model to analyze the role of FDI in economic development. In this study we have collected the data set from the databank of World Bank and have been matched up against the data available on the site of UNCTAD (United Nations- -Conference on Trade and Development). Above two data sources have been chosen because they are the most reliable sources of data and are used by almost every researcher. The data set consists of FDI inflow (US$ mn) and Percentage growth of GDP (in Service Sector) through FDI. The data set is annual and covers the time period of
FDI is typically regarded as a mode of cross-border inter-firm collaboration which connects with important equity stake and efficient power in managerial decision making in international enterprises (de Mello, 1999). FDI is also an external factor which boost Thailand’s economic growth through employment, transfer of technology and knowledge and relocating manufacturing facility. However, there is increasingly movement of production base into China and India instead of Thailand. As a result, the Thai
There are certain present conditions that lead to a strong positive impact of FDI upon economic growth. Two studies can be referred in this instance; Alfaro et al. (2003) in their research describe that for FDI to have major impact upon the economic growth of the host country, if the financial markets in the host country well developed. Countries that have well developed financial markets gain more from inflow of FDI than countries with weak financial
International trade is an economic practice where countries can import and export goods with no concerns to government intervention which includes tariffs and import/export bans or limitations. International trade has several advantages on developing countries; who are nations with low levels of economic resources or low standard of living. Developing countries can advance their economy through strategic free trade agreements. Free trade generally improves the quality of life of poor nations. Nations can import goods that are not easily available within their borders; importing goods may be cheaper for than trying to produce consumer goods. Many developing nations do not have the production procedures available for translating raw materials into valuable goods.
FDI is known as foreign direct investment and it’s meant to make an investment in the other location in a foreign country. In this article, the foreign direct investment theories is mainly concern the three theories which are market imperfections theory, international production theory and the internalization theory.