Analysis of Foreign Direct Investments of North America
Kristin Daughdril & William Cassidy
Business Administration 418
Foreign Direct Investment (FDI) is an investment involving a long-term relationship and reflecting a lasting interest in and control by a resident entity in one economy of an enterprise resident in a different economy (UNCTAD). There are two types of FDI, inflows and outflows, which can be used to help determine the investment strategies and economies of countries engaged in FDI. North America has been the source of nearly one-half of all investment and almost three-quarters of the jobs created throughout the globe (Huggins, 442). North America is probably the most important continent when it comes to dealing with FDI. The three main countries of North America, the United States, Canada, and Mexico, all rank in the top 15 of world economies, proving them to be desirable partners in FDI transactions. The trends of FDI discussed in this report will be unparalleled to this information and can lead to some predictions on how future trends of the countries of North America will continue to be superior to that of the other continents of the world. Keywords: Foreign Direct Investment, FDI Inflow, FDI Outflow
Foreign Direct Investment is investment of a company located in a different country either by buying a company in the country or expanding its business into the country. FDI can be done for many purposes. Companies may have tax incentives abroad, cheaper labor, abundant resources, target-specific markets or other reasons to enter into direct investment with a foreign country. Three components of FDI include equity capital, reinvestment earnings, and intra-company loans. These three components are the values that, if changed, will affect FDI first-hand. FDI inflows are flows of investment into the reporting country from a non-resident entity. Outflows are just the opposite. They are the reporting countries’ investments into a country abroad. FDI has become a major factor in accessing economic power in the world economy.
The North American continent consists of many countries including the United States, Canada, Bermuda, Greenland, Mexico, Belize, Haiti, the Bahamas, Jamaica, and many others. This report focuses on the only two developed countries in North America, US and Canada, as well as another top economy of the world, Mexico. It has been found that North America has been the source of one-half of all foreign direct investment in the globe (Huggins, 442). All three countries are ranked in the top 15 in world economies. All three counties are members of WTO and, in spite of the differences in views on international trade and investment among the three countries; they entered NAFTA (North American Free Trade Agreement). NAFTA, along with the Canadian US Free Trade Agreement, CUSFTA, has increased the desirability of interest in the North American economic integration (Bird, 406). In the Americas, FDI is governed by a multi-layered system of agreements that include national investment statutes, bilateral investment treaties, free trade agreements, common markets, and multilateral instruments (Haslem).
NAFTA: Recently, foreign direct investment has changed from relying on how much a country exports, to now focusing more on trade between countries. In order to focus more on trade, many countries have abolished some trade barriers between countries, causing countries to do away with the protectionism strategy. Mexico, Canada, and the US decided to become a part of the North American Free Trade Agreement. This agreement allows the countries to trade freely. As a result of NAFTA, their foreign direct investment rose dramatically; Mexico, as well as Canada, has seen a great increase in FDI and import production. This also lowers the cost of trading between these countries because they are close to each other. This reduces the cost of transportation, causing an incentive to trade...
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