International Trade and Foreign Direct Investment

In: Business and Management

Submitted By Liimah
Words 736
Pages 3
Alimatou TRAORE
Concept Application essay #1
International Trade- IBS390
Summer 2015

International Trade and Foreign Direct Investment


1. International Trade, what is it?

2. FDI : Definition and different types

3. Impacts of FDI( Foreign Direct Investment) on International Trade

4. Costs and Benefits of FDI( Foreign Direct Investment)



The world economy has developed over the past few decades in a great manner, regarding investment in particular and the way multinationals enterprises are now investing in the developing world to increase their production, assets, and interconnected market networks. Individuals everywhere in the world turn out to be closer than ever before. Goods and services available in one nation A will be instantly promoted in another country B or C. Universal exchange and communication became more basic. This current situation is called Globalization. Globalization is at the same time the primary cause and effect of the incredible growth of International Trade over the past decades. Thanks to International Trade, consumers around the world enjoy a wider range of products than they would if they only had access to domestically made products.

1. International Trade, what is it?
International trade simply refers to the movement of goods and services across borders. This activity gives rise to a greater competition and more competitive pricing in the market. However let’s not misperceive the concepts of international and domestic trade. There’s a huge difference between the two. For instance, international trade is usually more expensive than domestic trade and factors of production such as capital and labor are typically more mobile within a country than across countries.
International trade is a source of job opportunities and also leads to development of economic…...

Similar Documents

Foreign Direct Investment

... Dissertation submitted to the Bradford University School of Management in partial fulfilment of the requirements for the degree of Master of Science in Finance, Accounting and Management MSc International Business & Management Dedication I would like to thank my supervisor, Mr. Ismo Kuhanen for his insightful and constructive guidance over the last three months. His generous and disciplinary attitude encouraged me to complete this dissertation. I would also like to pay special tribute to my parents who supported and encourage me all through my master’s degree. List of Abbreviations 3G- Third Generation BMI- Business Monitor International LTD FDI - Foreign Direct Investment GDP- Gross Domestic Product GSM- Global System for Mobile Communication IMF- International Monetary Fund OECD- Organization for Economic Co-operation and Development PTA- Pakistan Telecom Authority PTC- Pakistan Telecommunications PTCL- Pakistan Telecommunication Company Limited T&T- Telephone and Telegraph UAE- United Arab Emirates UNCTAD- United Nations Conference on Trade and Development WLL- Wireless Local Loop WTO- World Trade Organization Table of Contents List of Tables 10 List of Figures 11 Chapter 1. Introduction 13 1.1 Background 13 1.2 Research Gap 15 1.3 Research Objective 15 1.4 Research Questions 15 1.5 Research Structure 16 Chapter 2. Research Methodology 17 2.1 Qualitative Method 17 2.2 Philosophy 17 2.3 Approach 18 2.4......

Words: 19472 - Pages: 78

Foreign Direct Investment

.... • Infrastructure • Governess • Transportation • Gas • Law and enforce • Political stability • Electricity . These are the pre requisitions for creating a good congenial investment environment The world economy faced an economic recession over the period. But the government faced the situation with strong hand. The economy of Bangladesh is constituted by that of a developing country. It’s per capita GDP in 2009 was est. USD 621significantly lower than India, Pakistan, both which are also lower than the worlds average. According to the gradation by the International Monetary Fund, Bangladesh ranked as the 48th largest economy in the world in 2009, with a gross domestic product of USD 89.5 billion. The economy has grown at the rate of 6-7% p.a. over the past few years. More than half of the GDP belongs to the service sector, nearly half of Bangladeshis are employed in the agriculture sector, with RMG, fish, vegetables, leather and leather goods, ceramics, rice as other important produce. Remittances from Bangladeshis working overseas, mainly in the Middle East is the major source of foreign exchange earnings; exports of garments and textiles are the other main sources of foreign exchange earning. GDP's rapid growth due to sound financial control and regulations has also contributed to its growth. However, foreign direct investment is yet to rise significantly. Bangladesh has made major strides in its human development index......

Words: 5133 - Pages: 21

Foreign Direct Investment

... the economic transformation. 4. Conclusion Foreign direct investment is necessary for economic development in all countries. The world has changing in dramatic and fundamental way. The days of regionalism passed, and the century of globalization has come. Go along with this phenomenon, FDI is becoming much more prominent. As proved by most of economists, foreign direct investment plays a crucial role in industrial development of both developed and developing countries. It assists host countries in developing local enterprise, promotes international trade, escalalate competitiveness and technological diffusion, improve quality of labor force and financial source. For the home countries, foreign direct investment is a useful tool to enter and expand in the foreign markets. One country, even its economy is developed or developing needs FDI to control the growth. It is not unreasonable that every countries nowadays are competing for FDI by favourable policies and regulations. Even though there are still some people who protest FDI, pro-FDI trend is a more prominent . The beneficial effect of FDI towards economic dvelopment is clearly proved in Viet Nam which has recently opened for FDI. Even though it is a a new destinations for FDI, it attracts a relatively large number of FDI projects, especially in recent years. With the assistance of FDI, Vietnam’e economy is bossted with high growth rate of GDP, unemployment ratio is gradually reduced, poverty is...

Words: 3815 - Pages: 16

Foreign Direct Investment

...Foreign Direct Investment by Spain’s Telefonica Foreign Direct Investment takes place when a company invests its capital in new facilities in a foreign country. FDI is growing rapidly in the global market since it involves less risks compared to world trade and world output.  Spain's Telefonica provides a good example Foreign Direct Investment and how it has been growing in the global market. Telefonica was established in the 1920s when it was a state-owned monopoly in Spain.  In 1990s, when the government stopped deregulating the telecommunications industry, Telefonica rapidly changed and started to working towards growth by adopting new technology, reducing employees, and increasing profits and shareholders. One of the biggest steps Telefonica took was to invest in the telecommunications industry in Latin America since the region itself was starting to be deregulated and independent from the government. Even though Latin America shares many of the cultural value with Spain, Telefonica decided the merge or acquire facilities in the region. Telefonica chose acquisition as a way to enter Latin America instead of greenfield investment because greenfield investment involves opening a whole new facility and starting a company from scratch. Merging with an established facility is easier to manage by adding new technology and improving the management. The company invested a total of 11 billion in different countries in Latin America and became one of the biggest monopolies...

Words: 516 - Pages: 3

Fdi Foreign Direct Investment

... argumentation (where relevant), and provide a structured, evidence-based discussion of your thoughts and findings with respect to the topic at hand. This section should also include short concluding remarks – refer back to the question and focus on (a) how you have addressed this, and (b) the main points and messages that emerge from your work References All references should be complete and should follow standard academic conventions (i.e., Harvard system). See the examples below: Egelhoff, W. G. (1991). Information-processing theory and the multinational enterprise. Journal of International Business Studies, 22(3), 341–368. Rugman, A. M. (1981). Inside the multinationals: The economics of internal markets. New York: Columbia University Press. Presentation: The academic paper may be prepared individually or submitted as a group paper (no more than 2 contributors per project) Length: 2000 words for an individual submission and 3000 for a group submission (the word count excludes appendices and bibliography). The word count should appear at the end of the paper. An abstract of maximum 100 words required. Please pay attention to the learning outcomes (stated in your programme outline) in preparation for your academic paper. Marking criteria (see Grade Descriptors below) Select ONE issue from the following topics: 1. Foreign Direct Investment There are several theories that seek to explain why FDI takes place. These theories try to explain why firms go......

Words: 1117 - Pages: 5

Foreign Direct Investment

... competitive advantage over others. (Morgan, 1997). This is relevant even in today’s market, for example a firm ‘x’ decreases the cost of its manufacture then opponent firms like ‘y’ and ‘z’ will do the same in order to maintain their position in the market. The limitation of Knickerbocker’s theory is that it falls short of explaining why the first firm takes the initial step before the others do. The reason could be due to counteract ant technology or manufacture adversity. The internationalization theory’s accession therefore seems to be the most viable theory of FDI. In practice, the internationalization theory relates to our modern world today as multinational organizations are competing with each other on manufacture permutation and technological enhancement. These organizations are of the idea of surpassing or transcending their opponents and escalating their business in the market in the different industries, which they are situated in. References Robin J, Gilles L. G. , Cox H (1997) London [u.a.] Thomson, 1998. Morgan E. R. , Katsikeas S. C. (1997) Theories of international trade, foreign direct investment and firm internationalization: a critique. Retrieved on February 2, 2013 from:

Words: 419 - Pages: 2

Trade Openness, Foreign Direct Investment in Southeast Asia

...Trade openness, Foreign Direct Investment in Southeast Asia   1 Introduction Over the last three decades, foreign direct investment (FDI) inflows have provided strong impetus for economic development across countries. FDI serves as an important source of supply funds for domestic investment thus, promoting capital formation in the host country (Omisakin et al.2009). DI inflows can assist an economy by giving opportunities orameliorating the level of service sector (i.e telecommunications, banking and finance, transport), wholesale and retail trade, business and legal services. During this period there have been different strands in the empirical and theoretical literature aimed at investigating the relationship between FDI inflows and their determinants in developed and developing markets. According to UNCTAD (2009), many developing countries, including the leastdeveloped ones, have attracted only small amounts of FDI inflows despite their efforts towards economic liberalization in an increasingly globalizing world. Moreover, FDI inflows are highly concentrated in a small number of countries. The demand-side of FDI theory argues that investment will go primarily to countries large enough to support the scale economies needed for production (Trevino and Mixon2004). For Grosse and Trevino (1996) this explanation helps to understand why most FDI is directed to developed rather than to developing countries, given that most investment historically has been marketseeking.......

Words: 265 - Pages: 2

Foreign Direct Investment

...Paul XXXXXX XXXXXXXXX University International Financial Markets: Foreign Direct Investment FIN630 – Global Financial Management March 17, 2011 Foreign Direct Investment: Vernon’s product life-cycle theory Raymond Vernon’s theory was different than the modern day theories of the 1960’s. Before Vernon, economists thought the reason a country traded with another was because of some advantage it had over the other for producing a product. The advantage was thought to be mostly related to cost; a country could produce it cheaper. Vernon did not agree with this way of thinking. Raymond Vernon believed that products have a life cycle. His theory put emphasis on invention and new products. He believed that most trade came from manufactured products especially products saved consumers time and effort from work. Vernon believed that more advanced or stronger economic countries would focus on developing new products and inventions because those economies would have the economic structure to support research and development (Katsioloudes & Hadjidakis, 2007). Vernon believed that countries varied in economic development and they traded with each other not because they were superior but because it was a good opportunity for both. For example, during the 1950’s and 60’s the United States was a much more developed economic leader than Japan; however, trade between the two countries would not come from the U.S. having an advantage over Japan. It came about because...

Words: 1245 - Pages: 5

Foreign Direct Investment

... and expertise to help smaller companies in these emerging markets to expand and increase international sales. In 2012, these emerging markets became the greatest beneficiary of FDI. Inflows exceeded those to developed countries by $130 billion. he International Monetary Fund defines FDI as when one individual or business owns 10% or more of a foreign company's capital. Every financial transaction afterwards is considered by the IMF as an additional direct investment. If an investor owns less than 10%, it is considered as nothing more than an addition to his/her stock portfolio. With only a 10% ownership, the investor may or may not have the controlling interest in the foreign business. However, even with just 10%, the investor usually has significant influence on the company's management, operations and policies. For this reason, most governmental agencies want to keep tabs on who is investing in their country's businesses. Foreign direct investment has many advantages for both the investor and the recipient. One of the primary benefits is that it allows money to freely go to whatever business has the best prospects for growth anywhere in the world. That's because investors aggressively seek the best return for their money with the least risk. This motive is color-blind, doesn't care about religion or form of government. This gives well-run businesses -- regardless of race, color or creed -- a competitive advantage. It reduces (but, of course, doesn't eliminate) the...

Words: 1892 - Pages: 8

Foreign Direct Investment

... referred to Wong (2005), he has stated that the better the infrastructure of the host country, the more attractive it is to FDI. A good infrastructure will facilitate production activities as well as distribution of output. According to A.Yol and Ngie (2009), they have argued that the finding has shown that FDI flow in Malaysia are positively influenced by infrastructure in the long run. While in short run, FDI flows are determined by all the specified lagged variables. Specifically, while FDI is negatively influenced by its own lag, GDP growth rates, infrastructure and exports, it is positively affected by economy’s openness and real exchange rate variable. According to A.Yol and Ngie (2009), the estimated coefficient is positively signed as expected and statistically significant. In other words,a one percentage improvement in infrastructure would induce FDI flow to rise by approximately 2.6% annually. No doubt that infrastructure is critical in inducing FDI flows into a host country. 2.3 EXCHANGE RATE According to Zubair (2004), who support the view that exchange rate is always associated with foreign direct investment, he said that rate of exchange has long been regarded as an important determinant of FDI flows. As all trade in Malaysia is in term of dollars, FDI flow is expected to increase in response to a fall in the value of the Malaysia currency. As referred to Rana and Muhammad (2010), the coefficient of exchange rate is negative as expected. One...

Words: 4064 - Pages: 17

Foreign Direct Investment

... companies in their location selection decisions. This will help us understand the impact of the incentives, if any, given by governments. We study two cases, Wal-Mart in the UK and Germany and Toys‘R’Us in Sweden to verify our model and to draw conclusions that can be useful for firms as well as policy makers in the EU. -2- Introduction Foreign direct investment and company’s location decisions in Europe have attracted much attention from competitors, consumers, academics and governments. Empirical evidence has been provided in the literature with particular attention given to manufacturing investments. The main thrust in the study of this “race for FDI” has been the relationship between competition and trade policy, regional development, employment generation and industrial regeneration (Oxelheim 1993). From an academic perspective it appears worthwhile to investigate in how far the increase in the importance of the service sector is also reflected in the attention it is given with respect to attracting service-FDI. We particularly look into retailing companies because during the last decade, retailing has rapidly become more and more internationalised and retailing firms are creating high levels of value-added by means of domestic job-creation and local purchasing. Successful retail expansion involves the development of a set of network contacts with different actors and interest groups on that market, as well as good relationships with suppliers and other business...

Words: 9518 - Pages: 39

Foreign Direct Investment

... country by, inter alia, transferring “cleaner” technologies, thereby leading to more socially responsible corporate policies. At a macro level, FDI contributes to international trade integration not least because it results in a more competitive business environment for multinational companies (MNCs). MNCs compete globally through investing their assets into domestic markets of different host countries. Economic and political determinants of foreign direct investment Since FDI requires the flow of capital across national borders, it has always been intertwined with politics. Viewed in this way, three different political perspectives to FDI can be identified: radical view, free market view, and pragmatic nationalism. The radical view, which can be traced back to Marxism, treats FDI as a vehicle for exploitation of domestic resources, industries and people. Those governments who hold a radical view are hostile to FDI and therefore are in favor of nationalizing foreign firm assets or putting into place mechanisms to discourage inbound foreign firms’ operations. The free market view, on the other hand, is more in favor of FDI and promotes its rationale not least because it enables countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services. According to the free market view, FDI can be regarded as a win-win situation for both home and host countries. While prior to and during the 1980s the radical-based......

Words: 2791 - Pages: 12

Foreign Direct Investment

...FDI – A Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations. Investments can take place for many reasons, including to take advantage of cheaper wages, special investment privileges (e.g. tax exemptions) offered by the country. India is the third most attractive foreign directinvestment destination in the world. Types—  Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.[4]  Platform FDI Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country.  Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.[4 Mauritius, Singapore, US and UK were among the leading sources of FDI. Why countries seek FDI? Domestic capital is inadequate for purpose of economic growth; Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development; Foreign capital usually brings it with other scarce productive factors like technical know how, business expertise and knowledge. A...

Words: 1010 - Pages: 5

Foreign Direct Investment

... new pragmatism about the promise of FDI. The alien tort claims act has been used to bring civil actions in the US courts against corporations for violating international law anywhere in the world. ----------------------- An increase in FDI will increase the demand for the currency of the receiving country, and raise its exchange rate. In addition, an increase in a country's currency will lead to an improvement in its terms of trade, which are the ratio of export to import prices. However, a higher currency reduces competitiveness and exports may fall, worsening the balance of payments. Even so, the positive value of FDI to the balance of payments is probably likely to be more significant than any increase in the exchange rate that would follow. The Distribution of FDI FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy. FDI net outflows are the value of outward direct investment made by the residents of the reporting economy to external economies. Types of MNC Investment 1. Market Oriented Investment for the purpose of selling to consumers in that market. Market Orientation is the single largest motivation for MNCs. Automotive Industry is a Prominent Example. 14 of the 100 Largest MNCs are Auto Producers BMW, Mercedes, Honda, Toyota All Produce in the U.S. for the U.S. Market; Ford, GM, Nissan, in Europe Producing for European...

Words: 805 - Pages: 4

Indonesia Foreign Direct Investment

...According to the Indonesia Investment Coordinating Board, in the first half of 2015 capital expenditure on greenfield projects by foreign companies rose by some 62% year on year. In addition, in the last couple months, the government has launched six investment reform packages to ease the path for foreign investors looking to enter the Indonesian market, includes a new tax holiday scheme and plans for significant deregulation of key industries such as manufacturing, trade and agriculture. However, there are several remaining barriers that can be challenges both in the short term and long term foreign investment. First, regulations and policies. A lot of foreign investors worry about the length of time and the number of agencies that they have to deal with to obtain the necessary business permits/licenses. There are also many regulations that foreign investors are not necessary. Such complaints contributed negative perception to Indonesia investment environment. Second, the central bank’s decision to ban foreign currency transactions as of July 2015 makes companies’ financial planning more complicated. The central bank is prohibiting foreign currencies from being used in domestic transaction, including US dollar, to prevent Rupiah from depreciating. In addition to two reasons above, foreign investors also concern about worker productivity that is not keeping up with wage growth. Indonesia wage growth might be the fastest in Asia (12% per year), but productivity only......

Words: 278 - Pages: 2