Foreign Direct Investment (FDI) Theories and Alternatives

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25 Questions

What are the limitations of exporting?

According to the eclectic paradigm, how is FDI explained?

What influences the pattern of FDI in oligopolistic industries?

What does the radical view, rooted in Marxist theory, see MNEs as?

What does pragmatic nationalism seek to do?

What has led to a surge in FDI worldwide?

What is the definition of Foreign Direct Investment (FDI)?

When does a firm become a multinational enterprise (MNE)?

What are greenfield ventures in the context of FDI?

What does the 'stock of FDI' refer to?

Where historically has most Foreign Direct Investment (FDI) been directed?

Which country has been a target for FDI inflows due to large and wealthy domestic markets, dynamic and stable economy, and favorable political environment?

Which countries account for 60% of all FDI outflows from 2000 to 2020?

What is the growing importance of China in the context of FDI?

What are greenfield investments in the context of FDI?

Which region is emerging as an important region for Foreign Direct Investment (FDI)?

What is the main characteristic of greenfield ventures in the context of Foreign Direct Investment (FDI)?

What does the 'stock of FDI' refer to?

In the context of Foreign Direct Investment (FDI), what is the significance of China's role around 2005?

What characterizes the direction of historically most Foreign Direct Investment (FDI)?

What is the main characteristic of outflows in the context of Foreign Direct Investment (FDI)?

What has been the growing importance of China in the context of Foreign Direct Investment (FDI)?

What is the primary characteristic of joint ventures in the context of Foreign Direct Investment (FDI)?

What is the main characteristic that defines when a firm becomes a multinational enterprise (MNE) through Foreign Direct Investment (FDI)?

What characterizes the source of Foreign Direct Investment (FDI) historically?

Summary

Theories of Foreign Direct Investment (FDI) and Its Alternatives

  • FDI is favored over exporting and licensing due to its control over operations and strategy, but it is expensive and risky.
  • Exporting involves producing goods at home and shipping them to a foreign country, while licensing grants a foreign entity the right to produce and sell a firm’s product.
  • Limitations of exporting include transportation costs and trade barriers, while licensing may result in giving away valuable technological know-how and lack of tight control over production.
  • Advantages of FDI include maintaining control over technology and capabilities not amenable to licensing.
  • Strategic behavior and multipoint competition influence the pattern of FDI in oligopolistic industries.
  • The eclectic paradigm, championed by John Dunning, explains FDI with location-specific advantages and knowledge spillovers.
  • The radical view, rooted in Marxist theory, sees MNEs as instruments of exploitation, while the free market view supports FDI as beneficial for both source and host countries.
  • Pragmatic nationalism seeks to maximize national benefits and minimize costs by aggressively courting FDI and pursuing policies to achieve this.
  • The decline in radical ideology and increase in free market ideology have led to a surge in FDI worldwide, with some nations being more hostile to FDI.
  • Host-country benefits of FDI include resource-transfer effects, employment effects, and BoP effects, while costs include adverse effects on competition and national sovereignty.
  • Home-country benefits of FDI include capital inflow and employment effects, while costs include BoP deficits and loss of valuable skills from foreign markets.
  • Offshore production as FDI may stimulate economic growth and make a company more competitive, according to international trade theory.

Theories of Foreign Direct Investment (FDI) and Its Alternatives

  • FDI is favored over exporting and licensing due to its control over operations and strategy, but it is expensive and risky.
  • Exporting involves producing goods at home and shipping them to a foreign country, while licensing grants a foreign entity the right to produce and sell a firm’s product.
  • Limitations of exporting include transportation costs and trade barriers, while licensing may result in giving away valuable technological know-how and lack of tight control over production.
  • Advantages of FDI include maintaining control over technology and capabilities not amenable to licensing.
  • Strategic behavior and multipoint competition influence the pattern of FDI in oligopolistic industries.
  • The eclectic paradigm, championed by John Dunning, explains FDI with location-specific advantages and knowledge spillovers.
  • The radical view, rooted in Marxist theory, sees MNEs as instruments of exploitation, while the free market view supports FDI as beneficial for both source and host countries.
  • Pragmatic nationalism seeks to maximize national benefits and minimize costs by aggressively courting FDI and pursuing policies to achieve this.
  • The decline in radical ideology and increase in free market ideology have led to a surge in FDI worldwide, with some nations being more hostile to FDI.
  • Host-country benefits of FDI include resource-transfer effects, employment effects, and BoP effects, while costs include adverse effects on competition and national sovereignty.
  • Home-country benefits of FDI include capital inflow and employment effects, while costs include BoP deficits and loss of valuable skills from foreign markets.
  • Offshore production as FDI may stimulate economic growth and make a company more competitive, according to international trade theory.

Description

Test your knowledge of the theories and alternatives related to Foreign Direct Investment (FDI), including the advantages and disadvantages of FDI compared to exporting and licensing. Explore the factors influencing FDI patterns and the differing perspectives on its impact on source and host countries.

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