Presentation on theme: "Foreign Direct Investment Unit 2: Module 3. The Origins of Foreign Direct Investment Global liberalization and the recent expansion of the amount of business."— Presentation transcript:
The Origins of Foreign Direct Investment Global liberalization and the recent expansion of the amount of business being conducted among different countries have resulted in a tremendous increase in the amount of financial investment flows among countries. multinational or transnational corporation One of the principal entities driving these developments is the multinational or transnational corporation.
Multinational/Transnational Corporations A multinational or transnational corporation is a business entity which has operations in multiple countries. Another definition: A multinational corporation (MNC) or transnational corporation is a firm that operates in more than one country, that is it is a business with a parent company based in one country but production or service operations in at least one other country.
Examples of MNCs Some of the largest MNCs in the world are: The Coca Cola corporation Ford Nestle McDonald’s Hilton Hotels
Points to Note: Multinational corporations act as a channel through which investments flow among countries. Through their activities MNCs provide foreign direct investments (FDI). FDI should not be confused with portfolio investments which is the purchase of shares by foreign investors in business that are located in another country.
Foreign Direct Investments Defintion 1 Defintion 1 Foreign Direct Investments (FDI) Foreign Direct Investments (FDI) refers to investments undertaken by a company in the productive assets located in a foreign country. Definition 2 Definition 2 Foreign Direct Investments (FDI) Foreign Direct Investments (FDI) is investment that is necessary to produce or sell a good or service in a foreign country, that is capital flows into a country usually from multinational corporations.
Foreign Direct Investments Foreign direct investments can be done through either: 1) The outright purchase of a foreign company. 2) The establishment of new operations of an existing business in a foreign country.
Arguments in Favour of FDI FDI generates capital to meet deficiencies in savings in developing countries. Generation of employment Generation of foreign exchange Increases government’s tax revenue in the host country. Improved productivity from the transfer of managerial skills and technology Acquisition of new technology and specialist equipment (Examine in terms of BOP and effect on balance of payments)
Arguments against FDI Repatriation of profits Increased imports Tax concessions and transfer pricing Monopoly power: MNCs dominance Inappropriate technology Political influences Exacerbates inequality : dualistic income structures.