Foreign Direct Investment Essay

at that place has been a rise feed of Foreign Direct Investment (FDI) in the worlds economy. In the ancient decade businesses pay back become orbicular repayable to the increase liberalization, changing detonating device markets and changing applied science. With easy and effective intercourse systems investing of companies in contrary countries has been do easy. Foreign accept investment arrive ats the deuce countries, the host and the c every last(predicate)er-out investing. A elevated percentage of investment made done FDI involves building and fixtures or machinery and equipment. (www. oecd. org) Growing disdain has caused an increase in FDI.world(a)ization has resulted to broadened markets that press for increased mathematical production of skilfuls and services to adjoin the demand. Production levels across the globe stick besides risen precipitating heroic corporations to invest in external countries. Corporations turn out the capital and resources t o move their production bases to foreign countries. The service sector has in addition expanded. With technology advancement, skills and expertise bedevil been developed. Corporations have take strategies that leave alone increase active world(a) investment and this is evident in the youthful cross-border mergers.Strong corporate gainfulness has enabled corpo rank invests in the developing countries promoting FDI. Low interest rates and high real estate prices have also led to the to a lower enthronepinning of FDI. With the low US dollar value investors with other currencies gained the proportional service in investing in foreign countries. General macro scotchal return in major economies has been reason arse increased FDI. (www. oecd. org) Countries prefer FDI as a strategy for entering foreign markets to exports and granting foreign entities the right to bring their products under license. palpable disclosure net occur when a local firm is given the product under l icense. It could give important breeding about invention and imitation could occur. The MNCs could lose their workers to imitation product companies. by FDI, the MNCs can access big market and can produce at rock-bottom tolls. These leave escort that their profitability levels are higher. FDI provide grounds under which future trade barriers can be countered. Exportation is constrained by transportation system costs and trade barriers wish well obligations and quotas.Licensing hinders the company from direct control and this creates loopholes that lead to reduced profitability. (Kreinin M. and Plummer M, 2002) Firms based in the same perseverance can undertake foreign direct investment at the same clock time when the local demand in the impudent area can support local interpret. They can also locate such(prenominal) firms when there is price contention and cost pressure. just about areas have a proportional advantage over others and this makes them more approbative . They could be endowed with resources that the investors exploit using their scientific and managerial capabilities.They reduce their costs as regional manufacturing plants serve regional markets. political ideology influences government policy towards FDI. Some countries view MNCs as tools of imperialistic domination out to exploit their resources. MNCs exploits the developing countries and creates dependency in monetary value of jobs and technology. They contri plainlye to their continued backwardness, as they do not give back expensive make in return to the resources they exploit. exploitation countries provide cheap labor and affectionate materials. Another view is the comparative advantage where countries benefit from FDI.This view is beneficial as host countries allow FDI and gain from it. They sweep up products they do not produce and at lower costs. In this view countries produce what they can at least cost. Governments can restrict or leaven FDI. If a government p rotects its domestic industries producing the same output as a foreign corporation, FDI forgeting be discouraged. (Anderson K. and Blackhurst R, 1993) Governments can make policies on the location of multinational corporations (MNCs) that are kick upstairsable and that would increase FDIS.They can also promote or put in place proper infrastructure like good transportation systems, education and transparency all of which works to encourage FDI. Peace and stability are very important factors in influencing FDI. Government must therefore image that they maintain law, and order political fermentation deters FDI. Grants subsidies and tax concessions encourage inward FDI. There are economic and political harmonys that favor regional economic integrating like EU, NAFTA and MERCOSUR all of which have implications for business. scotch integrating in the midst of nations could be though preferential trade area (PTA) where countries are offered tariff reduction and discrimination i s reduced to piece countries. Free trade area (FTA) could also be offered where countries eliminate tariffs between themselves but maintain their own external tariff on imports. Custom mergers eliminate tariffs between themselves but set a parking lot external tariff for instance the EU. Countries could also adopt a parking area market, economic union or monetary union level. (Kreinin M.and Plummer M, 2002) Economic arguments for economic integration. There is increased trade as countries produce what they have comparative advantage in. Foreign supply is reduced and trade diversity is promoted wind to economic growth. Member countries enjoy the economies of ordered series Political argument for economic integration is that it promotes peace and stability among member countries. Arguments against economic integration. Dumping of products can occur due to the eradication of barriers. Some countries tend to benefit more than others.Countries may feel as they are losing their sove reignty, which is their sense of pride. (Hoekman B. and Schiff M, 2002. ) The European junction is an economic union where member countries permission free movement of good, services and flock and it uses a common currency it was ab initio known as the European Economic Community or common market. The northbound America Free Trade discernment is a free trade agreement of Canada, US and Mexico. It eliminates barriers to trade and promotes fair competition and increased investment opportunities. MERCOSUR- comprises of Argentina, Brazil, Paraguay and Uruguay.It transformed from a custom union to a common market in 2006. The Asia pacific economic cooperation comprises 21 members. It was formed in 1989 finished informal dialogue it promotes trade and investment and economic co-operation. The future of this great economic integration is promising. Businesses that are inherent in regional economic integration agreements will thrive if conditions in their regions are favorable. They will respond to the forces of demand and supply. Competition will be high and this will ensure that quality products are produced.References Peter M. Suranovic. Trends and modern developments in FDI. Retrieved on 22nd January 2008 from http//www. oecd. org/dataoecd/62/43/38818788. pdf. Anderson K. and Blackhurst R. 1993. Regional integrating and the Global Trading System, London and New York, reaper Wheat sheafs. Hoekman B. and Schiff M. 2002. Benefiting from regional integration. In Hoekman B. , Mattoo A. & side P. Development, Trade, and the WTO A Handbook, Washington, DC. World Bank. Kreinin M. and Plummer M. 2002. Economic Integration and Development Has Regionalism Delivered for Developing Countries? Cheltenham, Edward Elgar.