The Main Challenges Of FDI And Economic Development

1810 Words4 Pages
bulb-icon

Recommended: Advantage and disadvantage of foreign direct investment

The purpose of this essay is to demonstrate what are the main challenges of assessing the impact of FDI on economic development. In other words, we would like to comprehend why is it tough to assess that there is a positive relationship between FDI and economic development. While it is not necessary to recall the definition of an FDI and its different elements, it is worth defining economic development which is slightly different from economic growth. Indeed, the economic development includes economic growth but it is rather a process than a data. It contains components such as inequalities and poverty drop, public welfare, steady institutions. On the other hand, economic growth exclusively refers to the evolution of national income. As a matter of fact, theoretically, FDI is seen as a key factor …show more content…

Natural resources highlight this claim. Indeed, 80% of total FDI in Ecuador are made in the oil industry. However, these FDIs have not had any positive consequences on economic development in Ecuador. In fact, they have less employment effect, there are fewer technological spill-over because MNCs do not have the need to buy a significant amount of inputs from the host country. However, again, it depends on the company’s will. So, in this profit-maximizing case, FDIs replace domestic investments and reduce market share. Thus, we have demonstrated that profit-maximization and FDI made in natural resources are genuine challenges of assessing the impact of FDI on economic development. In the cases we mentioned, thanks to MNCs, FDIs don’t lead to economic development and on the contrary, they are a brake on growth. Now, it would be interesting to understand which challenges host countries are facing inside their own systems. This is the reason why we are going to study challenges such as political risks and terrorism, public investments and economic

Show More
Related

  • The Impact of Offshoring on the U.S. Economy

    1143 Words  | 3 Pages

    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).

    Read More

  • Why China Can Attract More FDI: A Response to "Competitiveness in India and China: the FDI puzzle"

    1483 Words  | 3 Pages

    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

    Read More

  • Sweatshop Analysis

    1059 Words  | 3 Pages

    As GDP per capita grows, the country’s standard of living rises with it. This newfound wealthiness allows for nations to invest in infrastructure, such as roads and education, and establish socially-conscious institutions, such as the American EPA, FDA, and CDC. In addition to further increasing quality of life and working conditions, establishment of such infrastructre allows foreign investment to be absorbed even easier: “Findings in literature indicate that a country’s capacity to take advantage of FDI externalities might be limited by local conditions, such as the development of local financial markets or the educational level of the country, i.e., absorptive capacities.” As the citizens become more productive, the government has more funds to invest in its own economy, which further improves the productivity of its citizens. This positive feedback loop eventually produces the necessary infrastructure of the nation begins to support itself. It can then afford to employ more effective and safer means of production, and sweatshops are phased out, no longer necessary. From here, the downsides of sweatshops will be completely gone, and replaced with only net social

    Read More

  • Foreign Direct Investment in China

    1419 Words  | 3 Pages

    ...itten the full word Foreign direct investment and then in the brackets he has put the abbreviation (FDI).

    Read More

  • Job Statistics in Latin America

    814 Words  | 2 Pages

    After the fall of the ISI standard, many questions began to arise in regards to how Latin American countries should move forward in its development, improve growth, and create jobs. From around the 1930s until the 1980s after many Latin American countries became independent, they wanted to have economic success and become somewhat economically independent and self-sustaining. Initially these countries thought that the best way to move forward with was Import Substitution Industrialization (ISI). However, when the 1980s came around these counties realized that ISI was not the best policy for the economy or the future. ISI lead inefficient industries because they were not exposed to international competition, the focus was not on the rural sector and lead to impoverishing the local producers, and the extreme protectionist ideals did more harm than good. The issue that has to be resolved as Latin America moves forward pertains to unemployment and the job market; many countries are trying to fix the issues that surround the job market and define who are the people that actually have jobs so that those that do not can learn what they need to in order to become employed.

    Read More

  • Critique of the Internalization Theory and Eclectic Paradigm

    1789 Words  | 4 Pages

    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...

    Read More

  • Impact of Highly Skilled Immigrants on Global Competitiveness

    1980 Words  | 4 Pages

    In 2000, the United States was the leading country containing more than 10 million highly skilled immigrants, which was an increase of over 5 million highly skilled immigrants from 1990, followed by Canada, Australia, United Kingdom, and Germany.

    Read More

  • Krispy Kreme Case Analysis

    2241 Words  | 5 Pages

    Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:

    Read More

  • Latin America Research Paper

    1202 Words  | 3 Pages

    Multinational corporations, for example, are actors that need to be accounted for, because their role usually involves providing FDI.  FDI projects can be either horizontal or vertical. Horizontal FDI is when the whole production process is copy-pasted between economies, the production facilities are set up with the aim of servicing that specific economy. Horizontal FDI is often used instead of exports to get past trade barriers such as import tariffs (Helpman, Melitz & Yeaple 2003). Vertical FDI on the other hand is where the production process is broken down in stages between economies. Each economy takes care of only a part of the whole production process of the relevant good and the outputs are then transported to their final assembling place. Vertical FDI can be used to gain from international differences in price of inputs, such as labor (Helpman

    Read More

  • In order to encourage FDI, government policy is viewed as necessary. It is detrimental to international trade as a whole? What about...

    561 Words  | 2 Pages

    OECD Publication. 2002. Foreign Direct Investment for Development. Available at: http://www.oecd.org/investment/investmentfordevelopment/1959815.pdf [Accessed 4 March 2014].

    Read More

  • Political Environment in International Marketing

    1398 Words  | 3 Pages

    An increasing number of countries are encouraging investments with specific guidelines toward economic goals. MNCs may be expected to create local employment, transfer technology, generate export sales, stimulate growth and development of the local industry.

    Read More

  • International Business and Globalization

    1482 Words  | 3 Pages

    ...sted in developing countries like Brazil and India by starting production units, but what we also need to see is the amount of Foreign Direct Investment (FDI) that flows into the developing countries. Companies which perform well attract a lot of foreign investment and thus push up the reserve of foreign exchange.

    Read More

  • Impact of Globalization on Indian Economy

    1556 Words  | 4 Pages

    Sukar, A., Ahmed, S., & Hassan, S. (n.d.). THE EFFECTS OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH. Southwestern Economic Review.

    Read More

  • Family Businesses

    1917 Words  | 4 Pages

    Smith, M. H. (2006). The natural advantage of nations: business opportunities, innovation and governance in the 21st century. Earthscan.

    Read More

  • The Disadvantages of Globalization

    1583 Words  | 4 Pages

    Globalization is a term that is difficult to define, as it covers many broad topics in the global arena. However, it can typically be attributed to the advancement of economic, social, and cultural interactions among the companies, citizens, organizations, and governments of nations; globalization also focuses on the interactions and integration of countries (The Levin Institute 2012). Many in the Western world promote globalization as a positive concept that allows growth and participation in a global community. Conversely, the negative aspects rarely receive the same level of attention. Globalization appears to be advantageous for the privileged few, but the benefits are unevenly distributed. For example, the three richest people in the world possess assets that exceed the Gross National Product of all of the least developed countries and their 600 million citizens combined (Shawki and D’Amato 2000). Although globalization can provide positive results to some, it can also be a high price to pay for others. Furthermore, for all of those who profit or advance from the actions related to globalization, there are countless others who endure severe adverse effects.

    Read More

More about The Main Challenges Of FDI And Economic Development

Open Document