Global Foreign Direct Investment And International Production

Ajami and BarNiv (1984) attempted to explain the variability of FDI across countries. They emphasized in following determinants of FDI in US: relative size of the US market, change in exports to the US, growth of GNP in the home and host countries, decline in value of the US dollar during the late 1970s, inflation rates in the home and host countries, attractiveness of the US capital markets and research and development and manufacturing as a percent of GNP.

According to the International Monetary Fund (IMF), Foreign Direct Investment (FDI) is defined as “cross border investment where a resident in one economy has control or a significant degree of influence on the management of an enterprise in another country.” FDI in the past decade has grown intensively, exceeding the growth of world production and the growth of international trade (Dierk, 2008). Many nations are open and engage in FDI because it will benefit domestic firms. Brazil, a top emerging market, has experienced record number of FDI projects, establishing it as the second most popular global destination in terms of FDI value. The country has experienced steady growth over the past decade and is projected to keep increasing its number of FDIs.

There is an increasing recognition when it comes to understanding the forces of economic globalization which requires looking first at foreign direct investment (FDI) by multinational corporations (MNCs); which is when a firm based in one country acquires production facilities in other countries or invests in businesses in that country for a voting share. “While real world GDP grew at a 2.5 percent annual rate and real world exports grew by 5.6 percent annually from 1986 through 1999, United Nations data show that real world FDI inflows grew by 17.7 percent over this same period” (Bernard). Bernard, Jensen, and Schott also found that ninety percent of U.S. exports and imports flow through a MNC, with around fifty percent of U.S. trade flows occurring between different affiliates of the same MNC. (Bernard)

After opening of the trade barriers in 1991, the foreign investment inflows have increased enormously. Foreign capital, which actually plays an important role in increasing productivity of labor and accumulation of foreign reserve in developing countries to meet the current account deficit , is consist of foreign direct investment (FDI) and foreign portfolio investment(FPI). Both have worked as an instrument of global economic integration and stimulation. Apart of providing access to the foreign capital FDI also offers modern era technology, tools of creativity, desired skill sets and other complementary skills. In addition of producing additional economic activity and generating employment, foreign investment facilitates in flow of sophisticated technology.

bilateral FDI stock and flow data for more than 200 countries from 2001 to 2012. Since FDI

In today’s increasingly globally integrated business world, foreign direct investment (FDI) “provides a means for creating direct, established and long-lasting links between economies,” according to the 2008 Organization for Economic Co-Operation and Development Benchmark Definition of Foreign Direct Investment (OECD, 2008, p. 14). Foreign direct investment (FDI) is defined as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor,” by the United Nations Conference on Trade and Development (UNCTAD).9

The world economy has evolved over the past few decades in an extreme fashion, regarding investment in particular and the way globalized enterprises are now investing in the developing world to increase their production, assets, and interconnected market networks (Foreign Direct Investment in Developing Countries, Finance and Development/March 1999). As a result of the changing trends of Foreign Direct Investment, developing countries have either benefited from them or stood behind others without any progress. Overall, even though FDI has experienced a decline since 1999 (opposed to the increase from the 1980's up to 1999) we can see that certain nations, like China, have increased their inflows relevant to Gross Domestic Product very

Foreign Direct Investment is the direct investment in new facilities or companies to expand a business in a new country. In evaluating and analyzing East Asia, it is important to focus on cultural issues as they are major indicators of the business environment and implementation in a given local. East Asia, including China, only began opening up for foreign investment in the 1970s. Japan is considered a developing market, where the rest of Eastern Asia is an emerging market, the majority of FDI around the world is targeted to developing nations due to increased stability, consumer culture, and large markets. The risk of emerging markets is greater than in developed, thus yielding a greater return on investment when the endeavor succeeds.

“The last fifteen years have seen an enormous growth of activity by multinational corporations, as measured by flows of foreign direct investment (FDI). FDI has grown much faster than either trade or income; whereas worldwide nominal GDP increased at a rate of 7.2 per cent per year between 1985 and 1997 and worldwide imports at 9.2 per cent, worldwide nominal inflows of FDI increased at 17.6 per cent.” (Shatz & Venables, 2000, p. 125)

Ekpo, A.H. (1995) investigated that the element like higher gain from investment, low labor and production cost, political stability, enduring investment climate, official infrastructure facilities and helpful regulatory atmosphere also serve to invite and guard FDI in the host country.Chadee and Schlichting (1997) investigated some of the aspects of FDI in the

Foreign Direct Investment (FDI) is a major or key element in international economic integration. Foreign Direct Investment creates a stable, direct and long lasting connections between economies. It therefore encourages the transfer of technology know how between countries and allow the host country to promote its products more widely in international markets. It is also and additional source of funding for investments and it can also be an important form of development. Foreign Direct Investment is an investment in a business firm by an investor from another country in which the foreign investor has control or a significant degree of influence over the company or firm. The Organization of Economic Cooperation and Cooperation

Yousaf (2008) Analyses of more than 3 decades reveal that FDI has positive relation with imports in short & long-run where as relationship with exports is negative in short & positive in the long-run. FDI is an economic influencer of economy of a country specially developing countries experience accelerated GDP when successful in attracting FDI as in case of Pakistan.

In developing countries FDI is seen as a useful source of funds. LDC’s look upon FDI as a source to bridge their demand supply gap of funds. It represents an important source of non-debt inflow that often brings along with it new technology and management

More than twothird of FDI is between TNC’s. Total revenues for the Global 500 TNCs in 2006 add up to $18.9 trillion, a third of the world 's GDP. 70,000 TNCs and their 6, 90, 000 foreign affiliates, contributing $19 trillion in sales, a third of world GDP, create major component of this FDI stock and worldwide FDI flows. GE (US), Vodafone (UK), and Ford (US) are the top three non-financial TNCs worldwide contributing maximum FDI flows. The global FDI in 2005 increased to $730 billion registering a growth of 18% over $648 billion of 2004. Of the total FDI flows, the developed world contributed $637 billion, out of which half is from only three countries-US, UK, and Luxemburg. In 2005 the net outflows from the developed world exceeded the inflows by $260 billion. For the US, the largest economy in the world with $ 12.5 trillion GDP, FDI outflow increased by 90% to $ 229 billion in 2005. The developing world FDI grew by 40% to $ 233 billion in 2004 mainly due to M&A activity and also due to green field FDI rising consecutively for the third year. Studies suggest that FDI flows by TNC’s have transformed international trade in the last two decades and created new giants and a new world order (Blonigen, 2005). For 2006-07, global FDI flows are expected to rise further if economic growth is consolidated and becomes widespread, corporate restructuring takes hold, profit growth persists and the pursuit of new markets continues (UNCTAD,

Foreign direct investment (FDI) inflows rose from $24.5 billion in 2003 to $76.2 billion in 2010. Intra-ASEAN capital flows have increased more than fourfold, accounting for 16.1% of the regional total in 2010 compared to 11.1% seven years ago. Only the EU contributes more.