The country that this essay will use as a case study is India. India is interesting because the country has become FDI-intensive in recent years, following its economic liberalisation in the early 1990s. Prior to this, the India economy had strict controls and regulation on foreign capital and foreign ownership. Foreign Direct Investment (FDI) was particularly targeted in these reforms in order to benefit from the inflow of capital and other assets such as technology and knowledge. Since the liberalisation of the FDI policy, India has experienced a massive increase in FDI inflow (see figure 1). The services sector and the computer software and hardware sector have received the largest shares of FDI inflows, followed by telecommunications, transportation, fuels and chemical sectors (figure 2).
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.
The other concepts discussed are linkages and spillovers. Spillovers can be defined as the effects that occur when the production function of producers are affected not only by their market activities but also by the activities of other economic agents. Linkages are a way in which spil...
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... evidence. Since the FDI and industrial policy reforms in the 1990s, market-seeking factors have played an important part in attracting FDI, such as market size and growth, as well as economic stability. Furthermore, as India’s debt to GDP ratio declines, more investment is predicted. At a later stage following the industrial policy reforms, India began attracting efficiency-seeking FDI as a result of language resources and cheap capital. Infrastructure is an important factor in attracting FDI, but the quality varies across states.
Capitalising on this FDI through linkages and spillovers has also being a significant topic of literature on investment in India. A common point on the studies of spillovers in Indian industry is that technology transfer and spillovers from FDI heavily depend on the absorptive capacity of the domestic firms, particularly the R&D efforts.
Sweeney, M. (2010). Foreign direct investment in India and China: The creation of a balanced regime in a globalized economy. Cornell International Law Journal, 43, 207-248. Retrieved from http://www.lawschool.cornell.edu/research/ilj/upload/sweeney.pdf
This assumption also limits its application to the real world greatly. Empirically we know that market failures and externalities to exist in almost, if not all, markets throughout the world. With this in mind EGT looked to explain these assumptions in its theory. Externalities are an important aspect of EGT and how technology advances economic growth. In the theory one form is the positive spillover, or externality, between firms and industry that are located near one another. These positive spillovers can take different forms, such as shared labor force that bring benefits to each firms, or a locational advantage of being situated near other firms (Hiro). These externalities provide these firms with a comparative advantage over the firm whom do not participate in this exchange. Externalities though are not alway positive and can also be a decentralizing force among the marketplace. These negative aspects are things such as pollution or traffic congestion. How to deal with these negative impacts is still up for toss. according to our slides on EGT its a toss up on if government intervention with policies will correct the situation or that intervention on the government 's behalf will only make the situation
Off-shoring is the establishment of business operations outside national boundaries. The process of moving business outside these boundaries is to garner an advantage either through tax breaks, lower wages, lower transportation cost and/or relaxed regulations ("Offshore definition," 2014). Many firms either branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its good to take advantage of lower cost (i.e. cheap labor). Markusen and Maskus found horizontal multinational replaces trade whereas, a vertical multinational positively correlates with trade (Markusen & Maskus, 2001).
I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.
...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.
FDI has enabled Mexico to acquire new technologies, improve infra-structure, stimulate productivity, and increase competitiveness in world markets. Today, Mexico is a major producer and exporter of automobiles, TV sets and laptop computers.
The essential factor of an oligopolistic firm is interdependence. Oligopoly involves few producers, which means more than one producer as it is in pure monopoly but not so many as in monopolistic competition or pure competition where it is difficult to follow rival firms’ actions. Therefore, due to small number of producers on oligopoly market, the price and output solutions are interdependent. As a result, firms can cooperate or come to an agreement profitable for everyone. Therefore, they can increase, as it is possible, their joint profits (Pleeter & Way, 1990, p.129). Further, oligopoly is divided on pure, which is producing homogeneous products, and differentiated, producing heterogeneous products (Gallaway, 2000). Economists Farris and Happel insist that the more the product is differentiated, the more firms become independent, and the more the product differentiation, “the less likely joint profit maximization exists for the entire group” (1987, p. 263). Consequently, it is worth to be interdependent.
One of the most well accepted models of FDI is Buckley and Casson’s (1976) internalisation theory, who developed a model of MNCs and FDIs centered around the interrelationship between market imperfections, knowledge and the internalisation of production and consumption (Buckley and Casson, 2009). Specifically, the theory recognized that multinational corporations are both horizontally and vertically organized, and that the “the vertically integrated firm internalises a market for an intermediate product, just as the horizontal MNE [multinational enterprise] internalises markets for proprietary assets” (Caves, 1996: p.13). In addition, internalisation will occur, and multinational corporations will expand only as far as the advantages, including barriers to entry, are not offset by the costs of control, communi...
In the year 2007, China and India ranked first and second respectively in the list of ideal foreign direct investment (FDI) destinations, according to A T Kearney, a global strategic management consulting firm (The Press Trust of India Limited, 2007a). The two nations, because of their similarities in geopolitical, economic and demographic aspects, are often compared with each other. To determine which one is more attractive for businesses to expand to, this essay will examine the business environment of both countries from the following perspectives: political/legal, economic, socio-cultural and technological.
[6] Kripalani, Majeet & Egnardio, Pete. The Rise Of India. Business Week Online. December 8, 2003. http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm
The Effect of the Development of Large Firms on Society Many firms choose to expand in size because of the cost and market share benefits the firms can reap. However, the development of large firms may not always be of benefit to consumers, and the advantages and disadvantages will be discussed in the following essay. Because larger firms such as Shell Petrol Station are able to experience internal economies of scale through lower unit costs, many of the cost savings are then passed on to the consumers through lower prices. Hence consumers are then able to enjoy greater consumer surplus, defined as the difference between the maximum price that a buyer is willing to pay for a good or service and the actual price paid. As seen from the diagram below, the marginal cost curve shifts to the right such that the new marginal cost = marginal revenue equilibrium lowers the price and increases the output level compared with the initial equilibrium.
The Associated Chambers of Commerce and Industry of India. (2012). India’s Experience with fdI: Role of a Game Changer. Retrieved from http://www.assocham.org/arb/general/Indias_Experience_with_FDI_Role_of_a_Game_Changer.pdf
The 4 market structures in relation to the benefits and costs to the consumer and producer
The type of firm we are going to investigate in this assignment is an oligopolistic firm. The essence of an oligopolistic market is that here are only a few sellers. As a result, the actions of any one seller in the market can have a large impact on the profits of all the other sellers. Oligopolistic firms are interdependent in a way that competitive firms are not. The company we chose to study is Petronas.
Moreover, China is the best example for how important is the government’s role in nations economy. Chinese government have created national team to focus on specific sectors such as electronics and automobile. (Sutherland,2003). As a result of this strategy, China became the biggest automobile manufacturer in the world by the end of 2012. Also, Chinese government is very successful to control financial markets and it owns 3 of top 10 banks in the world. On the other hand, in another growing state, India, government is applying different strategy rather than Chinese government that is based over encouraging foreign direct investments into the state by lowering tariffs. Eventually India has joined the top ten automobile manufacturers in the world and net profit of the companies has slightly increased by the end of this process (Sardy and Fetscherin, 2009)