...World Economy FDI: The OLI Framework 1 Foreign Direct Investment: The OLI Framework The “OLI” or “eclectic” approach to the study of foreign direct investment (FDI) was developed by John Dunning. (See, for example, Dunning (1977).) It has proved an extremely fruitful way of thinking about multinational enterprises (MNEs) and has inspired a great deal of applied work in economics and international business. In itself it does not constitute a formal theory that can be confronted with data in a scientific way, but it nevertheless provides a helpful framework for categorizing much (though not all) recent analytical and empirical research on FDI. This survey first summarizes the OLI paradigm and then uses it as a lens through which to review some of the highlights of this research, while also noting some important issues that it neglects. “OLI” stands for Ownership, Location, and Internalization, three potential sources of advantage that may underlie a firm’s decision to become a multinational. Ownership advantages address the question of why some firms but not others go abroad, and suggest that a successful MNE has some firm-specific advantages which allow it to overcome the costs of operating in a foreign country. Location advantages focus on the question of where an MNE chooses to locate. Finally, internalization advantages influence how a firm chooses to operate in a foreign country, trading off the savings in transactions, holdup and monitoring costs of a...
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...Journal of International Economics 72 (2007) 113 – 127 www.elsevier.com/locate/econbase Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level Eiichi Tomiura ⁎ Department of Economics, Yokohama National University, 79-4 Tokiwa-dai, Hodogaya-ku, Yokohama City, 240-8501, Japan Received 18 August 2004; received in revised form 1 May 2006; accepted 25 November 2006 Abstract This paper documents how productivity varies with globalization modes, based on a firm-level data set covering all manufacturing industries in Japan without any firm-size threshold. Only a small fraction of firms outsource, export, or invest abroad. Foreign outsourcers and exporters tend to be less productive than the firms active in FDI or in multiple globalization modes but more productive than domestic firms. This productivity ordering is robust even when firm size, factor intensity, and/or industry are controlled for. This paper also finds that outsourcers are on average less capital intensive than other globalized firms. © 2007 Elsevier B.V. All rights reserved. Keywords: Foreign outsourcing; Exporting; FDI; Heterogeneity; Firm-level data; Productivity JEL classification: F12; F23; D20; F14 1. Introduction Cross-border business activities in various forms have been facilitated by trade liberalization and the development of information technology. The globalization of firms is by no means universally observed, however. Even within industrialized countries, the vast...
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...The Fundamentals of International Business | | Assignment question: There are several theories that seek to explain why FDI takes place. These theories try to explain why firms go to the trouble of acquiring or establishing operations abroad. Such theory includes Dunning’s Eclectic Paradigm, Vernon’s Life Cycle and Knickerbocker’s Model to name a few. Your academic paper should illustrate the use of such theories to evaluate the rationale for foreign direct investment for a leading player in your chosen industry. | | | | Student: Matteo Noris ID: 10224550 Course: (BA) International Business Assignment Due Date: 25th January 2012 Unit Tutor: Agnieszka Chidlow Matteo Noris ID: 10224550 Fundamentals of the International Business Submission Date: Wednesday 25th January 2012 Weighting: 30% of the total mark for the Unit * Chosen Assignment Question : 2 Foreign Direct Investment There are several theories that seek to explain why FDI takes place. These theories try to explain why firms go to the trouble of acquiring or establishing operations abroad. Such theories include Dunning’s Eclectic Paradigm, Vernon’s Life Cycle and Knickerbocker’s Model to name a few. Your academic paper should illustrate the use of such theories to evaluate the rationale for foreign direct investment for a leading player in your chosen industry. Contents Page Contents Page 2 Abstract 3 Introduction 3 Main Body 4 Conclusions 8 References...
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...Why has world trade grown faster than world output? By Mark Dean of the Bank’s International Economic Analysis Division and Maria Sebastia-Barriel of the Bank’s Structural Economic Analysis Division. Between 1980 and 2002, world trade has more than tripled while world output has ‘only’ doubled. The rise in trade relative to output is common across countries and regions, although the relative growth in trade and output varies greatly. This article attempts to explain why the ratio of world trade to output has increased over recent decades. It provides a brief review of the key determinants of trade growth and identifies proxies that will enable us to quantify the relative importance of the different channels. We estimate this across a panel of ten developed countries. This will allow us to understand better the path of world trade and thus the demand for UK exports. Furthermore this approach will help us to distinguish between long-run trends in trade growth and cyclical movements around it. Introduction In the past few decades there has been an increasing integration of the world economy through the increase of international trade. The volume of world trade(1) has increased significantly relative to world output between 1980 and 2002 (see Chart 1). Some of this increase can be accounted for by the fact that traded goods have become cheaper over time relative to those goods that are not traded. However, even in nominal terms the trade to GDP ratio has increased over this...
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...Effects of Religion on Trade 12. Conclusion BIBLIOGRAPHY Anderson, James E. and Eric van Wincoop. 2003. Gravity with Gravitas: A Solu- tion to the Border Puzzle. American Economic Review. 93(1): 170-192. Arruñada, Benito. 2004. The Economic Effects of Christian Moralities. Economics and Business Working Paper Series, 743, March, Universitat Pompeu Fabra. Britannica Book of the Year. 2005. Chicago: Encyclopedia Britannica Inc. Barber Benjamin R. 1995. Jihad vs. McWorld. New York: Times Books. Brodbeck, Karl-Heinz. 2002. Buddhistische Wirtschaftsethik. Aachen: Shaker Economic Review 89: 379-99. Guo, Rongxing. 2004. How culture influences foreign trade: evidence from the U.S. and China. Journal of Socio-Economics. 33: 785-812. Helpman, Elhanan, Melitz, Marc and Rubinstein Yona. 2004. Helble, M., On the Influence of World...
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...Market Structure Grace M. Conner ACC 204: Principals of Microeconomics Instructor: Nicholas Bergan June 17, 2013 When consulting for the city of Sherman, Texas with the present mayor, it came to my attention that the mayor needed to understand the different markets within his town. As I went I tried to explain verbally it was discovered the present mayor was not familiar with the different market structures that made up the firms in his town. With this information is where the explaining of the different firms and their markets was explained. There was also discussion on the flow of the market firms and how the price elasticity worked within these firms markets. There was need to describe the high entry barriers that firms face when entering into the market when competing with other more established firms, that have known names against a small proprietors entering this market and the competitions it faces. There was the explaining how the smaller proprietors that do not have a famous or more renown name can hurt them when competing against monopolies and oligopolies, and how these market structures are formed and how they can edge out small proprietors with pricing and products sold that people are more familiar with. The mayor was interested and need to know how the local, state and federal governments could step in and help these smaller firms if there is seen a favoritism towards the higher monopolies...
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...Title page International trade, technology transfer and firm competitiveness: A comparative study of Zimbabwe exporting and non-exporting firms. By Michael Kamoyo Chinhoyi University of Technology Lecturer: Department of Marketing mkamoyo@cut.ac.zw ; rumbi12@yahoo.co.uk Tel: 263 67 29442 Abstract better positioned to adopt and assimilate international trade related technology because they possess better technological capabilities in the form of The paper examines the preparedness of exporting and non-exporting SMEs in harnessing the technological opportunities availed by international trade. Using cross sectional data for 131 SMEs, a logistic regression analysis was done to ascertain the extent to which factors like, technical skills, networking, firm’s innovation system, especially research and development activities and international involvement influence the adaptation and assimilation of technology for productive efficiency. The result shows that labour used in exporting firms is 3.164 times more productivity than that in non-exporting firms, high import composition, good networking abilities. However, it was noted that there is no significant difference between exporting and non-exporting firms on Information Communication Technology (ICT) diffusion and R&D activities. It is recommended that for technology transfer to be relevant and useful to non-exporting firms there is need to strengthen their technological absorptive capacity by scaling up their networking...
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...Economic Growth is the increase per capita gross domestic product (GDP). There is a distinction between nominal and real economic growth, where the first is the growth rate including inflation, while the second is the nominal rate adjusted for inflation. Moreover economic theorists distinguish short-term economic stabilization and long-term economic growth. The topic of economic growth is mainly related to the long run. Short-run variation of economic growth is termed the business cycle. The long-run path of economic growth is one of the central questions of economics. In 1377, the Arabian economic thinker Ibn Khaldun provided one of the earliest descriptions of economic growth in his Muqaddimah (known as Prolegomena in the Western world) (cited in Weiss, 1995): When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life. Economic growth is an important part of economic theory and one of the most significant problems economists tried to explain is the differences of growth...
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...The E↵ects of a Decrease in the Savings Rate The following graphs remind us of how capital per e↵ective worker and output per e↵ective worker behave after s is lowered: Note: The magnitudes of the decrease are di↵erent for output and capital per e↵ective worker! Now let’s analyze total output and total capital stock! Intermediate Macroeconomics Motivation The Extended Solow Model Growth of Total Capital and Output What are the growth rates of total output and capital outside the steady state? Total Capital: K ) AN K AN K AN A A K = K N K ) = N K K AN K AN + gA + gN Total Output: Y = K ↵ (AN)1 ↵ K Y =↵ + (1 ) Y K ↵) ✓ A N + A N ◆ Plugging in from above: Y =↵ Y K AN K AN ! + gA + gN +(1 ↵)(gA +gN ) = ↵ Andre Switala Intermediate Macroeconomics K AN K AN +gA +gN Motivation The Extended Solow Model Capital per E↵ective Worker We know that the growth rate of capital per e↵ective worker is negative in the transition to the new steady state and that it becomes less negative over time. Intermediate Macroeconomics Motivation The Extended Solow Model Time Paths of Total Capital The trend in both steady states is the same, however the levels are di↵erent! What happens to the capital stock over time depends on the parameters at time t = t0 : K AN K AN > gA + gN K AN K AN < gA + gN Intermediate Macroeconomics Motivation The Extended...
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...Public Disclosure Authorized WPS5314 Policy Research Working Paper 5314 Public Disclosure Authorized Regional Trade Agreements Caroline Freund Emanuel Ornelas Public Disclosure Authorized Public Disclosure Authorized The World Bank Development Research Group Trade and Integration Team May 2010 Policy Research Working Paper 5314 Abstract This paper reviews the theoretical and empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the past 15 years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all of these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization has materialized, while the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences. This paper—a product of the Trade and Integration Team, Development Research Group—is part of a larger effort in...
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...THE INCREASING RETURNS REVOLUTION IN TRADE AND GEOGRAPHY Prize Lecture, December 8, 2008 by Paul Krugman Princeton University, Woodrow Wilson School, Princeton, NJ 08544-1013, USA. Thirty years have passed since a small group of theorists began applying concepts and tools from industrial organization to the analysis of international trade. The new models of trade that emerged from that work didn’t supplant traditional trade theory so much as supplement it, creating an integrated view that made sense of aspects of world trade that had previously posed major puzzles. The “new trade theory” – an unfortunate phrase, now quite often referred to as “the old new trade theory” – also helped build a bridge between the analysis of trade between countries and the location of production within countries. In this paper I will try to retrace the steps and, perhaps even more important, the state of mind that made this intellectual transformation possible. At the end I’ll also ask about the relevance of those once-revolutionary insights in a world economy that, as I’ll explain, is arguably more classical now than it was when the revolution in trade theory began. 1. TRADE PUZZLES In my first year as an assistant professor, I remember telling colleagues that I was working on international trade theory – and being asked why on earth I would want to do that. “Trade is such a monolithic field,” one told me. “It’s a finished structure, with nothing interesting left to do.” Yet even before the arrival...
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...Introduction Foreign Direct Investments (FDIs) have been found to be important aspects of economic development of host countries, and crucial, in building technological capabilities of local companies in developing countries. It is a channel for international diffusion of technology, having the potential to transfer technological, organizational and managerial practices to developing countries, which may, in the long run, lead to higher technological capabilities, and innovation, resulting in economic growth in these countries. For Tanzania specifically, FDI is a type of investment which is relatively infant as the government had opted for a socialist path of economic development from 1967 to around mid 1980s, following the Arusha Declaration. In mid 1980s, the government initiated and implemented deliberate economic liberalization policies. These resulted into the rise of FDI in Tanzania. For instance, FDI inflows increased from USD 2,418.7 million in 1999 to USD 3,776.6 million in 2001. Such investments were concentrated in the sectors of manufacturing (33.4%), mining and quarrying (28%) as well as agricultural (6.7%) (TIC, BoT and NBS, 2004: 23-24)4. 2.2 Foreign Direct Investment (FDI): Definition and Characteristics 2.2.1 Defining FDI Several FDI definitions have been given in the literature and these are more or less similar. A more representative definition of FDI is that by Rutherford (1992: 178; 1995: 178-179) who defines FDI as business investment in another...
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...working papers The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence By Rod Falvey Leverhulme Centre for Research on Globalisation and Economic Policy, School of Economics, The University of Nottingham and Neil Foster Department of Economics, University of Vienna In cooperation with Olga Memedovic UNIDO, Strategic Research and Economics Branch UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna, 2006 This publication was prepared by Olga Memedovic, UNIDO staff member from the Strategic Research and Economics Branch drawing on the background paper prepared for the UNIDO Research Project “Public Goods for Economic Development”, by Rod Falvey and Neil Foster. Rod Falvey is Professor of International Economics, Leverhulme Centre for Research on Globalisation and Economic Policy, School of Economics, The University of Nottingham. Neil Foster is Assistant Professor of economics at the Department of Economics, University of Vienna. The publication has benefited from the valuable comments provided by Professor David Greenaway during the finalization of this publication. UNIDO intern Robert Lambertus van Lavieren provided assistance during various stages of preparing this publication. The authors are grateful to Michael Bailey for proofreading the final...
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...The pace of social change and transformation worldwide seems to have quickened dramatically in the latter decades of the twentieth century, with implications for many dimensions of social life and human culture, this can be explained by the term globalisation. Therefore this essay attempts to look at the negative effects of globalisation on the development of less developing countries (LDC’s), this will be done while using an appropriate theory of development perspective (dependency theory), and at the end of the essay in which a conclusion shall be arrived at. Globalisation came into the picture in the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball this is according to ( ). Globalisation is the process of increasing the connectivity and interdependence of the world markets and businesses. It is the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture. Globalisation on its own is virtually meaningless. Like its precursor, the word “development”, it needs an adjective to escape from a convenient conceptual fuzziness; the adjective used here will be “neo-liberal”. This means that globalisation is another name for late twentieth/twenty-first century capitalism. (www.abouteconomics.com) Stephen Gill (2008) defines globalisation as the reduction of transaction cost of Trans boarder movements of capital...
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...ATPC African Trade Policy Centre Work in Progress No. 77 ATPC Economic Commission for Africa The Impact of Chinese Investment and Trade on Nigeria Economic Growth 2009 Djeri-wake Nabine Abstract This paper examines the impact of Chinese foreign direct investment and bilateral trade with Nigeria economic growth. The study use an augmented aggregate production function (APF) growth model, three methods are performed to test the hypothesis that there is no causal relationship between foreign direct investment, exports, imports and economic growth. The statistical methods used are: the Ordinary Least Squares Method (OLS) and the Granger causality test. Using time-series and panel data from 1990 to 2007, The estimated both short and long-run analysis for Nigeria-China relationship shows that in short term the bilateral trade doesn’t contribute to Nigeria economic growth but the long term relationship can enhance Nigeria economic growth; it should then be the policy priority for Nigeria to make sure that FDI inflows from China and its trade relationship with China exert the reinforcing and beneficial effects on GDP and exports through active acquisition of advanced technology and open trade regime. A - CEA EC E ATPC is a project of the Economic Commission for Africa with financial support of the Canadian International Development Agency (CIDA) Material from this publication may be freely quoted or reprinted. Acknowledgement is requested...
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