Fdi in Insurance Services Fins3616 Assignment
Business and Management
Submitted By chrishello1992
International Investment in Insurance Services in the US
By Christopher Chan (z3329864), Chun Kin Kwok (z3308661), Jay Jung (z3331738)
This paper proposes several determinants of FDI in insurances services in the US and then examines its relationship and significance to FDI inflows in insurance services by an Ordinary Least Squares (OLS) regression. The regression found that a higher US wage rate discourages FDI in insurance services. However, it also shows that FDI in manufacturing and insurance services complement each other. Thus, the foreign acquisition of US manufacturing assets may have contributed to the almost fourfold increase of FDI inflows in insurance services between 1987 and 1998. 1) Introduction
Since the 1980s, many foreign firms have seen the US as a relatively attractive destination for direct investment. Foreign direct investment (FDI)1 allows investors to exert a significant influence on the host country. It creates a global marketplace in which firms from one country are operating another firm in a totally different environment. The US has undergone a major process of restructuring and deregulation that has encouraged this type of investment. In 1998, US FDI inflows accounted for 30% of worldwide FDI inflows (US $193 billion) with the second largest host country (the UK) a distant US$130 billion behind. The dot com bubble in the 90s spurred the nearly doubling of FDI levels in the US in 1998 as overseas firms were eager to tap into the expanding market. Most FDI growth was contributed by the large inflows of Mergers and Acquisitions (M&As). For example, new investment by foreign direct investors through M&As in the US accounted for 90 per cent of total investment expenditures in foreign affiliates in 1998 (UNCTAD,1999). The insurance sector in the US is a prime example of an industry that has undergone many M&As as a...