Detenninants of foreignstrategy towards fdi, Microeconomics

Instructions to Students

1. Answer all the questions, using economic models where appropriate. Begin a question on a new page.

2. Please attach a copy of the assignment cover sheet. It should state your name, FIN number, course, module, and date of handing in. Append this copy of the assignment. (Show only the MDIS logo on your cover page, not the SCU logo.)

3. Referencing: This is a fonnal assessment which requires students to use correct referencing procedures. In essence, these are:

  • Ideas and knowledge which are in the 'public domain' for your academic level need not be referenced.
  • Ideas important to your argument which come from the literature should be referenced in text e.g. "Lee S. A (1998) suggests that perfect competition is the most efficient market form". The writer has used the ideas of Lee to support their own argument, so it is appropriate to provide a source.
  • Authors referenced in-text must be included in the bibliography at the conclusion of your work as follows: Lee S. A. 1998. Market Structure and Competition, Singapore, EPB Press.
  • Direct quotes which you incorporate to express or clarify an idea should be in quotation marks (It ... It) with a reference and page number e.g. perfect competition is "highly efficient because market forces allocate resources" (Lee, 1998 page 27). Authors quoted directly must also appear in the bibliography.

(Failure to following correct referencing in text may result in failure of the assignment.)

You are required to study the following article extracts and answer the questions given below: Along with the other NIEs, Singapore shared certain factors that tended to increase its international competitiveness, among them stable macroeconomic policies, sound financial systems and good infrastructure, an educated workforce, a work ethos, and policies which encouraged entrepreneurial activity.ill However, in the area offoreign investment Singapore took quite another path compared to South Korea and Taiwan. In fact; the Singapore government's treatment of foreign investors --at least in the early years of development --was almost preferential when compared to indigenous capital. Through infrastructural subsidies and tax incentives to foreign exports, the local Singaporean business class was to an extent marginalized·ill

By way of contrast, South Korea's foreign investment code was one of the world's most restrictive. Unlike Singapore, South Korea had a large population and a relatively large domestic economy. South Korea's subsidised conglomerates used their highly-protected domestic markets as a base to produce the economies of scale required to launch themselves aggressively into foreign markets in the late 1960's and 1970's.IiI

In effect, the Singaporean government's policies hoped to attract TNCs to establish manufacturing facilities in Singapore to not only provide employment, but also with the hope that sophisticated foreign technology would 'trickle down' to local companies effecting technology transfer. Government policy-makers tended to believe that TNCs were better vehicles for the acquisition of high technology.IQ] However, to what extent this trickle-down effect actually happened is debatable. It is suggested that TNCs are generally reluctant to use local contractors, which is where transmission of techniques and practices would be expected to take place, and that the technology actually used in locations such as Singapore is not cutting edge, but rather at the end ofits product life-cyc1eJll

Global foreign direct investment (FDI) inflows grew in 2007 to an estimated US$1.5 trillion, surpassing the previous record set in the year 2000. FDI flows to developed countries in 2007 grew for the fourth consecutive year, reaching US$l trillion. Flows were particularly buoyant in the United Kingdom, France, and the Netherlands. The United States maintained its position as the largest single FDI recipient. The European Union (EU) as a whole continued to be the largest host region, attracting almost 40% oftotal FDI inflows in 2007. However, several risks to the world economy --most ofthem not new --may have implications for FDI flows to and from developed countries in 2008.

  • In Africa, FDI inflows in 2007 remained relatively strong. The unprecedented level of inflows (US$36 billion) was supported by a continuing boom in global commodity markets.
  • FDI inflows to Latin America and the Caribbean, meanwhile, rose by 50% to a record level ofUS$126 billion. Significant increases were recorded in the region's major economies, especially Brazil, Chile and Mexico, where inflows doubled.
  • FDI inflows to South, East and South-East Asia, and Oceania maintained their upward trend in 2007, reaching a new high ofUS$224 billion, an increase of 12% over 2006. More than half ofall FDI to developing countries went to these economies. At the subregional level, there was a further shift towards South and South-East Asia, although China and Hong Kong (China) remained the two largest recipients in the region.
  • In West Asia, overall FDI inflows declined by 12%. Turkey and oil-rich Gulf States centinued to attract the most, but geopolitical uncertainty in parts ofthe region affected FDI overall.
  • FDI to South-East Europe and the CIS, or transition economies, expanded significantly, by 41 %, to a new record of US$98 billion. This was the seventh year of uninterrupted growth ofFDI in the region. Inflows almost doubled to the region's largest recipient, the Russian Federation.

Questions:

Q1. What are the detenninants of foreign direct investments in developing countries?

Q2. Examine the type ofincentives that developing countries governments may implement to attract foreign direct investments.

Q3. What are the FDI trends in Singapore in the last decade? Discuss any changes in the government's strategy towards FDI?

Posted Date: 4/2/2013 5:16:32 AM | Location : United States







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