Foreign Direct Investments
The aim of the essay is to critically analyze why foreign investment appear to be more productive than domestic investment and to give the advantages and disadvantages of a less developed countries dependency on foreign direct investment. The paper will start by giving the definitions for major concepts in the question. Secondly, a critical analysis of why foreign investment appear to be more productive than domestic investment will be given followed by advantages and disadvantages of a developing country dependency on foreign direct investment. Lastly, a conclusion will be drawn.
Foreign direct investment (FDI) is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based (Economy Watch: 2010). The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The United Nations defines control in this case as owning 10 percent or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm (United Nations: 1991).
Historically, FDI has been directed at developing nations as firms from advanced economies invested in other markets, with the US capturing most of the FDI inflows. While developed countries still account for the largest share of FDI inflows, data shows that the stock and flow of FDI has increased and is moving towards developing nations, especially in the emerging economies around the world.
FDI involves the decision of which activities to keep internal to a firm, and which to contract on the market: only the activities internal to a firm will be included in FDI, while activities can be pursued by arms-length transactions between unrelated firms. For example, a firm investing in a country might bring with it some
Foreign direct investment (FDI) is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based (Economy Watch: 2010). The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The United Nations defines control in this case as owning 10 percent or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm (United Nations: 1991).
Historically, FDI has been directed at developing nations as firms from advanced economies invested in other markets, with the US capturing most of the FDI inflows. While developed countries still account for the largest share of FDI inflows, data shows that the stock and flow of FDI has increased and is moving towards developing nations, especially in the emerging economies around the world.
FDI involves the decision of which activities to keep internal to a firm, and which to contract on the market: only the activities internal to a firm will be included in FDI, while activities can be pursued by arms-length transactions between unrelated firms. For example, a firm investing in a country might bring with it some