The Euro-zone Crisis Essay

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In the past decade the world has witnessed a collapse of the world financial system, the Euro-zone crisis, an imploding Middle East, conflicts in Ukraine and natural disasters that have rocked global stock markets and investor confidence. Global Foreign Direct Investment (FDI) fell by 18 per cent to $1.3 trillion in 2012. This decline was in sharp contrast to other key economic indicators like GDP and unemployment registered positive growth at the global level (United Nations, 2013). The economic fragility and policy uncertainty in a number of economies has caused a domino effect causing concern among investors. However, FDI flows to developing countries prove to be more resilient than flows to developed countries, recording their second…show more content…
Dunning & Rugman (1985) states that ‘Today, it is widely recognised that the theory of FDI is primarily the transfer of nonfinancial and ownership-specific intangible assets by the multinational enterprise (MNE), which needs to appropriate and control the rate of its internalised advantage.’ (Dunning & Rugman, 1985). The three FDI theories that will be selection are: Product Cycle Theory, Internalisation & OLI Paradigm. In line with Hymer’s market imperfections and monopolistic advantages theory, Vernon (1979) argued that ‘technological innovations in consumer and industrial goods could explain international investments of firms.’ (Vernon, 1979). According to Vernon (1979), there are four stages of production cycle: innovation, growth, maturity and decline (Vernon, 1979). In the first stage of the production cycle, manufacturers have an advantage by possessing new technologies, as the product develops also the technology becomes known (Lancaster & Wesenlund, 1984). Then standardization comes into existence because of the increase in demand and the commitment to achieve economies of scale (Kusluvan, 1998). WORK ON THIS A few shortcomings of product cycle theory are expressed. Rugman et al argued (1985) that it did not take into account various comparative advantages of different countries at the initial stage of production. Internalisation Internalisation theory provides an
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