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Critical Evaluation of Institutional Factors Impact on Outward/Inward Foreign Direct Investment

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Critical Evaluation of Institutional Factors Impact on Outward/Inward Foreign Direct Investment
Essay
Critical Evaluation of Institutional Factors Impact on Outward/Inward Foreign Direct Investment
This aim of this essay is to evaluate the impact of institutional factors on outward and inward FDI. This will be done by determination of the major FDI (Foreign Direct Investment) factors, evaluation of the role of institutional factors and investigation of institutional factors impact on inward and outward FDI flows.
Several sources (Aswathappa, 2012; Jensen, 2012) have identified FDI as an investment, made by a company based in one country (home country) into another company, which is based in other country (host country), in order to obtain certain degree of management control over that company.
Recent evidence (Ho and Rashid, 2011) has demonstrated that a tendency for a firm to engage in foreign investment depends on a combination of different factors and elements. Dunning (2011) has argued that company has to satisfy three conditions in order to successfully engage in international activity, which are ownership (know-how, technologies), localisation (natural resources, low production costs) and internationalisation. This theory is quite unique because it is developed by several important FDI determinants such as natural resources, production efficiency, strategic assets and market size. Nachum (1999) has argued that in accordance with Hymer’s firm’s specific advantages theory, companies are engaging in FDI if they possess specific advantages e.g. access to raw materials, economy of scale, marketing advantages, etc.
Aswathappa (2010) has suggested another FDI determinant which is ‘follow the client/rival’. If one of the clients builds a foreign facility, it is reasonably for the company to follow the client and also build a foreign facility in order to continue cooperating with the client. If one company goes to the foreign market it draws the attention of other similar companies, that can potentially exploit similar opportunity and therefore follow



References: Aswathappa, K. (2010). ‘Intrernational Business’, 4th Edition, pp. 100-112. New Dehli: McGraw Hill. Azemar, C Dunning, J (2011). New Challenges for International Business Research: Back TotThe Future, pp. 190-200. UK: Edward Elgar. Egger, P Garcia, A. and Navia, D., (2003). ‘DETERMINANTS AND IMPACT OF FINANCIAL SECTOR FDI TO EMERGING ECONOMIES: A HOME COUNTRY 'S PERSPECTIVE’, pp. 21-23. Spain: Banco de España. Globerman, S Hatchondo, J. C. and Martinez, L. (2011). ‘Legal Protection to Foreign Investors. Legal Protection to Foreign Investors’. 97 (2), pp. 175-187. Hsu, C., Zhang, W. and Lok, L., (2007). ‘The Business and Investment Environment in Taiwan and Mainland China’, pp. 200-205. Singapore: World Scientific. Jensen, N., (2012) Kalotay, K. and Sulstarova, A. (2010). ‘Modelling Russian outward FDI’. Journal of International Management. 16 (2), pp. 131-142. Kolstad, I Knutsen, C. H., Rygh, A. and Hveem, H. (2011). ‘Does State Ownership Matter? Institutions Effect on Foreign Direct Investment Revisited’. Business and Politics. 13 (1), pp. 1-31. Levent, I. (2006). ‘Global Development Finance 2006: The Development Potential of Surging Capital Flows’, pp. 107-110. Washington: WB Publications. Nachum, L OECD, (2008). ‘Private Sector Development in the Middle East and North Africa Making Reforms Succeed’, pp. 124-126. France: OECD Publishing. Paul, J Peng, M. and Parente, R. (2012). ‘Institution-Based Weaknesses Behind Emerging Multinationals’. RAE. 52 (3), pp. 360-364. Quéré, A., Coupet, M Seyoum, B. (2011). ‘Informal Institutions and Foreign Direct Investment’. Journal of Economic Issues. 45 (4), pp. 917-940. Solomon, B (2007). Three Essays on the Impacts of Risk and Uncertainty on Foreign Direct Investment and Remittances Flows into Developing Countries, pp. 53-55. USA: ProQuest. Wei, S.-J., (2000) Wells, L. (2001). ‘Using Tax Incentives to Compete for Foreign Investment: Are They Worth the Costs?’ pp. 97-100. USA: WB Publications. Witt, M

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