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FOREIGN DIRECT INVESTMENT
Transcript of FOREIGN DIRECT INVESTMENT
An important part of international capital movement, however, takes a different form, that of direct foreign investment. By direct foreign investment we mean international capital flows in which a firm in one country creates or expands a subsidiary in another. The distinctive feature of direct foreign investment is that it involves not only a transfer of resources but also the acquisition of control. That is, the subsidiary does not simply have a financial obligation to the parent company; it is part of the same organization structure.
DEFINITION OF FOREIGN DIRECT INVESTMENT
Foreign direct investment is evaluated in private foreign investment. As we understand the definition, foreign direct investment is the transfer of capital between countries without a market transaction is transferred from one country to another. In this way, under the control of a main headquarters for companies operating in different countries are called multinational companies.
Also multinational corporations are an important vehicle for the international flows of capital, labor, technology, we also devote a great deal of attention to this relatively new and crucial type of economic enterprise.
TYPES OF FOREIGN DIRECT INVESTMENTS
1) Backward production activities:
Multinational firms invest usually other countries for using their sources .Companies operate for their industrial production in home countries. Especially, oil companies and mining companies prefer this type of foreign direct investment.
2) Forward production activities:
This activities made by two different reasons. First, parent company invest for organizing marketing activities in foreign country. Other reason is that, some company have to invest this type of foreign direct investment because they do not have enough market.
3) Horizontal production activities:
The most common activities is carried out by multinational firms. Multinational firms which use this type of foreign direct investment transfer their technology, know-how, and professional staff to home companies with their capital. Aim of multinational companies are maximizing their profit, and competitiveness across the world.
ADVANTAGES AND DISADVANTAGES OF FOREIGN DIRECT INVESTMENT
Primary benefit is that it allows money to freely go to whatever business has the best prospects for growth anywhere in the world. That's because investors aggressively seek the best return for their money with the least risk.
This gives well-run business-competitive advantage. It reduce to effects of politics cronyism and bribery.
Investor receive additional benefits. Their risk is reduced because they can diversify their holdings outside of a specific country industry or political system.
The standart of living the recipient country is also improved by higher tax revenue from the company that received the foreing direct investment.
Employment will increase.
Long run aggregate supply will shift outwards.
Aggregate demand will also shift outwards.
DISADVANTAGES OF FOREIGN DIRECT INVESTMENT
ADVANTAGES OF FOREIGN DIRECT INVESTMENT
FOREIGN DIRECT INVESTMENT IN THE WORLD: PROJECTS, FLOWS, STOCKS
Contracted FDI indicates the schemed and ratified projects for FDI in the year concerned while "actualized FDI" means the projects which have been approved in the previous year and utilized throughout the year concerned.
Contracted and Actualized FDI
Foreign Direct Investment Flows
According to UNCTAD, for associates and subsidiaries, FDI flows consist of the net
sales of shares and loans (including non-cash acquisitions made against equipment,
manufacturing rights, etc.) to the parent company plus the parent firm’s share of the
affiliate’s reinvested earnings plus total net intra-company loans (short- and longterm) provided by the parent company. For branches, FDI flows consist of the increase in reinvested earnings plus the net increase in funds received from the foreign direct investor.
FDI flows with a negative sign (reverse flows) indicate that at least one of the components in the above definition is negative and not offset by positive amounts of the remaining components.
Foreign Direct Investment Stocks
FOREIGN DIRECT INVESTMENT IN CHINA: PROJECTS, FLOWS, STOCKS
Contracted and Actualized Foreign Direct Investment
Foreign Direct Investment Flows
Foreign Direct Investment Stocks
The Impacts of Foreign Direct Investment on China’s International Trade
Since the opening up policy was formally established, foreign trade including China signaled to dominate international-worldwide trade. By the end of the last century nearly one out of twenty five exported goods was registered to China (That was one out of hundred two decades prior to that date.). In other words, increase in the FDI inflow led to development of China’s international trade and integration with the rest of the world (i.e. a major contribution in globalization of China.).
Researches conducted by OECD count up to 10 major impacts of FDI on China’s international trade:
New Comparative Advantages:
The Impact on China’s Trade Growth
The Role of FIEs in Processing Trade
The Comparative Trading Performance of FIEs
Building Dynamic Specializations
Domestic Penetration of FIEs
Rising Local Content
Domestic Firms Have Lagged Behind
Regional Disparities Have Increased
The Impact on China’s Balance of Payments
Foreign direct investment is one of the most important studies in macroeconomics. Esspacially after 21. Century , Foreign direct investment flows and stocks have increased all around the world. This study examined foreign direct investment which is a type of private capital investment. The Project includes defination of foreign direct investment and effects of foreign investment in the world. Moreover, Project examined Types of foreign investments, benefits and bad ways of foreign direct investment. Finally we had explained foreign direct investment in the world and we mentioned foreign direct investment in China.
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Inflation may increase slightly.
Domestic firms may suffer if they are relatively uncompetitive.
If there is a lot of foreign direct investment into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk.