Fdi from Global Bussines Today

1. This Chapter explains about the pattern of FDI (Foreign Direct Investment) between countries and to examine the influence of governments on firm’s decisions to invest in foreign countries.

First of all it explains about the flow and the stock of FDI which is the flow of FDI refers to the amount of FDI undertaken over a given time period (normally a year). The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time. We also talk of outflows of FDI, meaning the flow of FDI out of a country, and inflows of FDI, the flow of FDI into a country.

Trends in FDI at the past 30 years have seen a marked increase in both the flow and stock of FDI in the world economy. FDI has grown more rapidly than world trade and world output for several reasons. First, despite the general decline in trade barriers over past 30 years, and business firms still fear protectionist pressures.

The direction of FDI historically, most of it has been directed at the developed nations of the worlds as firms based in advanced countries invested in the other’s markets. To looking at the importance of FDI inflows is to express them as a percentage of gross fixed capital formation. Gross fixed capital formation summarizes the total amount of capital invested in factories, stores, office buildings, and the like.

The theories of FDI first the Knickerbocker’s theory suggest that much FDI is explained by imitative behavior by rival firms in an oligopolistic industry then the Vernon’s product life cycle theory suggest that firms undertake FDI at particular stages in the life cycle of products they have pioneered. However, Vernon’s theory doesn’t address the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. After that Dunning has argued that location-specific advantages are considerable importance in explaining the nature and direction of FDI. According the Dunning, firms undertake FDI to exploit resource endowments or assets...