Foreign Direct Investment and Trade: Influence of Fdi on World Trade Flows and on an Economy of an Individual Country.

New trend in Foreign Direct Investment (FDI) became Central and Eastern Europe since the end of 1980s. That happened because of those countries starting transformation to ma market economy and chose as one of the priorities in it integration to a global economy.
Such instrument as FDI has its advantages as well as disadvantages. Firstly, FDI is a source of supplementary productive capital that is really scarce source in terms of deep structural changes of a whole economy.
Secondly, FDI provide transfer of new technologies, advanced methods of management and marketing that facilitate effective productive sources usage both in companies with foreign interest in business and in national companies of receiving economy. The last one could be done in different ways: by buying patents and licenses, by hiring foreign top-managers, by organizing joint production and so on.
Thirdly, FDI is developed form of international cooperation and thus it is effective means of integration national economy into global one. They usually favor rise in receiving country’s foreign-trade turnover, expansion in volume and diversity of production and scientific and technical collaboration forms.
There are some negative impacts of FDI to a recipient’s economy, of course. For instance, Such form of investment could establish unprofitable in a long-run specialization of the receiving country in a world commerce. That could bring receiving country into a raw materials export that has happened to a Russian Federation.
Competition between investing country’s companies and receiving ones could lead to ousting weak national firms by strong and developed foreign. That could entail reducing of workplaces and serious social consequences.
In the 1950s according to models of Ricardo and Hecksher-Oilin-Samuelson it was considered that economic growth is determinates by scale of its world commerce. Country should extend export of those goods in which production it has comparative cost advantage. In... [continues]

Read full essay