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ASSESS THE ARGUMENTS FOR AND AGAINST FOREIGN DIRECT INVESTMENT

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Introduction

200055: INTERNATIONAL FINANCE PROBLEM SET FIVE ESSAY : ASSESS THE ARGUMENTS FOR AND AGAINST FOREIGN DIRECT INVESTMENT NAME: Vanessa Walsh STUDENT ID: 13740678 LECTURER/TUTOR: Ian Nalson WEIGHTING: 20% DATE SUBMITTED: Thursday 2nd June 2005 WORD LENGTH: 1, 598 words The topic of Foreign Direct Investment has both positive and negative debates in the increasingly globalised financial environment. The benefits of such movements include; increased employment levels, freer flow of capital, stimulating the local economy, and overcoming impediments to trade, whereas the negative implications are impeding upon national sovereignty, the 'race to the bottom', political instability, and the impact of Greenfield investment upon the environment. The direction of this essay will be firstly defining the concept of foreign direct investment, analysing the benefits, then arguments against foreign direct investment, finally displaying the infinite benefits of foreign direct investment across the globe. Foreign direct investment became a prominent practice in the 1980's with the phenomenon of globalisation and the deregulation of many financial markets. "Foreign direct investment implies the acquisition and exertion of a significant control over a foreign firm" (Moosa, 2004, p.502) and can be through either vertical or horizontal foreign direct investment (henceforth referred to as FDI); measurement of what is deemed significant control varying between nations. ...read more.

Middle

If the gains are not synergistic, then there may be a conflict of interest- further impacting upon national sovereignty, according to Wint and Williams 2005; and Hill 2005. Wint and Williams, 2002 note that Singapore with the help of Richard Vernon endeavoured successfully in enticing FDI as per his theory of production factors, spurring a 'race to the bottom' (one of the most commented on disadvantages of FDI) as each competing country attempts to offer the most attractive incentives which essentially negatively impact upon the country's economic advancement. Host governments may offer substantial taxation incentives for FDI's within that nation; leading to "tax competition" (Lahiri and Ono, 1998, p.444) where developing nations find themselves competing against each other to deliver the largest tax incentives. According to Wint and Williams 2002, in 1998 of the145 regulatory alterations in 60 countries made, 94% of developing nations altered their polices to create a more favourable position for inward investing firms. In essence developed countries reap the benefits as they gain better tax breaks and other incentives to invest into the developing nations. This 'race to the bottom' leads to a decrease in potential profits for developing countries. ...read more.

Conclusion

A., (2004) International Finance: An Analytical Approach, Second Edition, McGraw-Hill Australia Pty Limited, Australia Morgan, R. E., and Katsikeas, C. S., (1997) Theories of international trade, Foreign Direct Investment and firm internationalization: A critique, Management Decision, 35, 1, pp.68 - 78 OECD, (2003) Foreign Direct Investment Restrictions in OECD Countries, [Online] Available at: www.oecd.org/eco/statistics, accessed 15th May 2005 Pfeffermann, G., (2002) Sizing Up Foreign Direct Investment, [Online] Available at http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=2799, accessed 27th May 2005 Wint, A. G., and Williams, D. A ., (2002) Attracting FDI to developing countries A changing role for Government? The International Journal of Public Sector Management, Vol. 15, No. 5, pp.361-374 UNIDO (2005) FDI in South East Asia: Experience and Future Policy Implications for Developing Countries, [Online] Available at: http://www.unido.org/file-storage/download/?file%5fid=34564, accessed 28th May 2005 --- (1998) Do More, Asia, Corporate Location, Sep-Oct 1998, pp.10-15 APPENDICES APPENDIX ONE SOURCE: Gardiner, R., (2001) Foreign Direct Investment: A Lead Driver for Sustainable Development?, p.1 [Online] Available at: http://www.earthsummit2002.org/es/issues/FDI/fdi.PDF, accessed 15th May 2005 APPENDIX TWO SOURCE: Gardiner, R., (2001) Foreign Direct Investment: A Lead Driver for Sustainable Development?, p.2 [Online] Available at: http://www.earthsummit2002.org/es/issues/FDI/fdi.PDF, accessed 15th May 2005 APPENDIX THREE SOURCE: OECD, (2003) Foreign Direct Investment Restrictions in OECD Countries, p.170, [Online] Available at: www.oecd.org/eco/statistics, accessed 15th May 2005 ?? ?? ?? ?? Vanessa Walsh 13740678 3 ...read more.

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