Liberalisation and trends in fdi, Macroeconomics

Foreign Direct Investment and Development:

In neo-classical economic theory, FDI involves  the movement of capital from capital abundant  to capital scarce host countries. Mundell(1957) propounded that FDI promotes greater production and welfare in the same manner as trade in goods under trade liberalisation. Akamatsu (1961, 1962) provided  'flying geese theory'.  According  to  this  theory,  FDI through MNCs disperses production technology and know-how fi&n  a high wage  source country  to one  or more lower wage host  countries.

i) ownership specific advantages: The firm-has comparative  advantage  in the knowledge  it 'owns'. We may refer it technology, patents, etc, 

ii)  locational advantages of host countries: such as huge market in  the host country, or  lower  cost  of  local resources  or  elimination  of tariffs that induce the firms  to locate in host country etc., and 

iii) internalisation advantages: It means the endeavour of the firm to produce goods itself, rather than licensing its technology. 

The  first  one reflects  firm-specific  determinants, whereas the  locational advantage is specific to particular country, which explains why FDI flows to some countries and not others. Thus OLI (taken from  the first letters of the above mentioned advantages) paradigm addresses the following questions such as:

a) which  firms do undertake FDI,

b) where do the firms go for their direct investment  and

c) why  do they internalise their advantages  through  direct investment instead of selling  it off.

Thus a combination of factors determines the forms of production and the way market is being catered and serviced. 

Posted Date: 11/9/2012 5:17:04 AM | Location : United States







Related Discussions:- Liberalisation and trends in fdi, Assignment Help, Ask Question on Liberalisation and trends in fdi, Get Answer, Expert's Help, Liberalisation and trends in fdi Discussions

Write discussion on Liberalisation and trends in fdi
Your posts are moderated
Related Questions
what do we mean when we say export are exogenous and import are endogeneos?

Relate Overnight interest rates targets with money supply There are many ways to explain the important connection between the overnight interest rate target and the money suppl

What are the contents in the market strikes back? a. Price controls • Price ceiling • Price floor b. Quantity controls quota c. Excise tax d. Inefficiency

examine keynesian theory of un employment

Explain the concept of elasticity and describe why the supply of petrol in the short run is relatively inelastic.

Which is a better measure of economic well-being real GDP or Nominal GDP? Ans) Well real GDP takes into account the inflation rate and therefore is more accurate at recording th

The analysis of the speculative demand for money reveals the importance of the level of wealth. Explain this assertion in detail

Q. Explain Consumer Price Index? CPI is a price index of a particular basket known as the CPI-basket. CPI-basket comprise essentially all the servicesand goods consumed in a co

Limitations of the theory of rational expectations: Critics of this theory note that if policy makers have more information about the economy or their own actions than d

Question 1: (a) Outline the three main methods of recruitment. (b) Discuss the advantages & disadvantages of any one method mentioned above.