Multinational Corporations and Foreign Direct Investment an Analytical Look at Their Determinants, Characteristics, Costs and Benefits for Host and Investing Countries.
Multinational Corporations and Foreign Direct Investment: An Analytical Look at their Determinants, Characteristics, Costs and Benefits for Host and Investing Countries.
As Foreign Direct Investment (FDI) flows have increased dramatically in recent decades, the issues of FDI have attracted strongly scholarly interest. First of all, FDI is defined as an investment in one economy by a multinational or transnational corporation based in other country. It involves a long-term relationship and either full or partial management control of real assets (Lankauskiene & Tvaronavicience, 2011). FDI includes all funds provided by an investor, either directly or through an affiliate. FDI arises when the host country has an investment opportunity that it cannot exploit by itself as it lacks of technology and knowledge, or due to market incompleteness. A multinational corporation (MNC) may be able to exploit such an opportunity because it has the necessary capital, technology, and managerial skills to do so (Kindleberger, 1969 cited in Azzimonti & Sarte, 2007, pg287). Before making an investment, investor will look at various aspects such as firm size, political institution, infrastructure, market size, investment incentives and more. A number of studies have examined different selections of factors. In general, there are three categories of determinants that affect FDI decision: (1) attractiveness of economic conditions which includes market size and physical infrastructure; (2) institutional framework consists of investment incentives and political institution; (3) MNC strategies. Political institution which plays the role of sustaining the politics is an important element in the inflow of FDI. As we know that a foreign investor cannot prevent the government in the host country from changing the environment in which the investment decision was made (Azzimonti & Sarte, 2007). Thus, political institution with political credibility and flexibility offer
As Foreign Direct Investment (FDI) flows have increased dramatically in recent decades, the issues of FDI have attracted strongly scholarly interest. First of all, FDI is defined as an investment in one economy by a multinational or transnational corporation based in other country. It involves a long-term relationship and either full or partial management control of real assets (Lankauskiene & Tvaronavicience, 2011). FDI includes all funds provided by an investor, either directly or through an affiliate. FDI arises when the host country has an investment opportunity that it cannot exploit by itself as it lacks of technology and knowledge, or due to market incompleteness. A multinational corporation (MNC) may be able to exploit such an opportunity because it has the necessary capital, technology, and managerial skills to do so (Kindleberger, 1969 cited in Azzimonti & Sarte, 2007, pg287). Before making an investment, investor will look at various aspects such as firm size, political institution, infrastructure, market size, investment incentives and more. A number of studies have examined different selections of factors. In general, there are three categories of determinants that affect FDI decision: (1) attractiveness of economic conditions which includes market size and physical infrastructure; (2) institutional framework consists of investment incentives and political institution; (3) MNC strategies. Political institution which plays the role of sustaining the politics is an important element in the inflow of FDI. As we know that a foreign investor cannot prevent the government in the host country from changing the environment in which the investment decision was made (Azzimonti & Sarte, 2007). Thus, political institution with political credibility and flexibility offer
Bibliography: Azzimonti, M. and Sarte, P.G. (2007). Barriers to Foreign Direct Investment Under Political Instability. Economic Quarterly. 93(3), p287-315. Available at http://web.ebscohost.com/ (Accessed date: 10 December 2011). Blomstrom, M. and Kokko, A. (2008). The Economics Of Foreign Direct Investment Incentives. Working Paper 168. [e-journal]. Available at http://scholar.google.com.my/ (Accessed date: 20 December 2011). Zilinske, A. (2010). Negative and Positive Effects of Foreign Direct Investment. Economics and Management. p332-336. [e-journal]. Available at http://web.ebscohost.com/ (Accessed date: 10 December 2011). Blomstrom, M. and Kokko, A. (2008). The Economics Of Foreign Direct Investment Incentives. Working Paper 168. [e-journal]. Available at http://scholar.google.com.my/ (Accessed date: 20 December 2011). Wong, H.T. (2005). The Determinants of Foreign Direct Investment in Manufacturing Industry of Malaysia. Journal of Economic Cooperation. 26(2), p91-110. [e-journal]. Available at http://scholar.google.com.my/ (Accessed date: 20 December 2011). Zilinske, A. (2010). Negative and Positive Effects of Foreign Direct Investment. Economics and Management. p332-336. [e-journal]. Available at http://web.ebscohost.com/ (Accessed date: 10 December 2011).