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Greenfield Investment in Host Countries

In: Business and Management

Submitted By Lissie
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Greenfield investment in host countries

1 Introduction

Foreign direct investment (FDI), a most important product of economic globalization, has swept the world in the past few years. As an investment mode of FDI, greenfield investment refers to a kind of strategy that the multinational enterprises(MNEs) start new firms by constructing facilities in the host countries from the ground up (Wang & Wong, 2009). It flows to the host countries and becomes their primary source of external financing (Calderón, Loayza & Servén, 2004). Various types of incentives such as prospective tax-breaks, preferential loans and subsidies were given by the host governments in order to encourage more greenfield investments from the foreign countries (Blomström, Kokko & Mucchielli, 2003). However, the attitude towards greenfield investment has changed during the past few decades when some studies, as discussed later, found a series of problems followed by this investment mode and some scholars begin to hold a negative opinion towards greenfield investment. Whether the host countries should encourage MNEs entering via greenfield investment is remain unsolved.

This essay will argue that, although greenfield investment may damage the profit of host countries, it should be promoted owing to the considerable benefits produced by this investment activity.

The first part of this essay will analyze some problems partly mentioned by several researchers that should be imputed to greenfield investment. The second part will focus on some benefits summarize from the existed literature.

This essay is different from the previous literature whose focuses are mainly on the home countries. Besides, a certain range of potential impacts of greenfield investment are obtained in this essay which provides a reference to the further studies.

There are some limitations in this essay as

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