Foreign Direct Investment and Globalisation. Foreign Direct Investment (FDI) When is investment...

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Foreign Direct Foreign Direct Investment and Investment and Globalisation Globalisation

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Foreign Direct Investment (FDI) When is investment best defined as ‘direct?’ –When investment gives rise to foreign control of domestic assets –IMF- “…made to acquire a lasting interest in an enterprise where the investor has an effective voice in the mamagment of the company”

Transcript of Foreign Direct Investment and Globalisation. Foreign Direct Investment (FDI) When is investment...

Foreign Direct Investment and Foreign Direct Investment and GlobalisationGlobalisation

Foreign Direct Investment Foreign Direct Investment (FDI)(FDI)

When is investment best defined as When is investment best defined as ‘direct?’‘direct?’– When investment gives rise to foreign When investment gives rise to foreign

control of domestic assetscontrol of domestic assets– IMF- “…made to acquire a lasting IMF- “…made to acquire a lasting

interest in an enterprise where the interest in an enterprise where the investor has an effective voice in the investor has an effective voice in the mamagment of the company”mamagment of the company”

FDI- What Does it Offer?FDI- What Does it Offer?1.1. Capital- long-term, risky investmentCapital- long-term, risky investment2.2. Market Access- export marketsMarket Access- export markets3.3. Promote Export-led strategies of growthPromote Export-led strategies of growth4.4. EmploymentEmployment5.5. Technology- transfers increase productivityTechnology- transfers increase productivity6.6. Spillovers and Linkages- introduction of more Spillovers and Linkages- introduction of more

competitive environment and connections to competitive environment and connections to local industry boost productivity and output of local industry boost productivity and output of entire economyentire economy

Questions:Questions:

1) Describe the world trend in FDI 1) Describe the world trend in FDI inflow between 1980 and 2004. inflow between 1980 and 2004.

Use figure 1Use figure 12) How do the inflows and 2) How do the inflows and

outflows compare in 2003 and outflows compare in 2003 and 2004. Use figure 2.2004. Use figure 2.

3) Explain the role of TNCs in 3) Explain the role of TNCs in FDI.FDI.

Foreign Direct Investment in Foreign Direct Investment in China - PresentationsChina - Presentations

What has FDI Done for China?What has FDI Done for China?Role in Economic Transformation-GeneralRole in Economic Transformation-General– Established new industrial branchesEstablished new industrial branches– Employment opportunitiesEmployment opportunities– Technological transfersTechnological transfers– Technological and Managerial SkillsTechnological and Managerial Skills

Spillovers to domestic industrySpillovers to domestic industry– International Trade- boosted immenselyInternational Trade- boosted immensely

Export production by Foreign-Invested EnterprisesExport production by Foreign-Invested Enterprises– Increased from 1% in ’85 to 45% in ‘98Increased from 1% in ’85 to 45% in ‘98

FIE-Led Export GrowthFIE-Led Export Growth

• Source: Lardy (1999)Source: Lardy (1999)

The FDI Boom in ChinaThe FDI Boom in ChinaIn 2002 China was the #1 recipient In 2002 China was the #1 recipient of FDI worldwideof FDI worldwideGNP- FDI rose from 2% in ’92 to 5% GNP- FDI rose from 2% in ’92 to 5% in ’97in ’97– FDI in S. Korea early ’90’s at .02% GNPFDI in S. Korea early ’90’s at .02% GNPWhat happened in the early 1990’s- What happened in the early 1990’s- specifically 1992?specifically 1992?

The FDI Boom in ChinaThe FDI Boom in China

Source: Source: China Business Review China Business Review (Nov.-Dec. 2000)(Nov.-Dec. 2000)-Investment booms in the early 1990’s then retracts -Investment booms in the early 1990’s then retracts

in the wake of the Asian financial crisisin the wake of the Asian financial crisis

Room for ImprovementRoom for Improvement

Despite huge FDI stock, PRC still far below Despite huge FDI stock, PRC still far below other other developingdeveloping states in FDI per capita states in FDI per capita measurementsmeasurements– In 2000: Brazil received $195 per capitaIn 2000: Brazil received $195 per capita– China got only $30 per head-15% Brazil's China got only $30 per head-15% Brazil's – OECD states- highly developed-avg. $1,320.9OECD states- highly developed-avg. $1,320.9– Closest developing state is S. Africa $22.2Closest developing state is S. Africa $22.2– Next highest per capita ratio @ $54- ThailandNext highest per capita ratio @ $54- Thailand

* China still has far to go before achieving a China still has far to go before achieving a developed statusdeveloped status

Presentation tasksPresentation tasks

1)1) Present the company and why it is a TNC.Present the company and why it is a TNC.2)2) When did the company started to invest in When did the company started to invest in

China?China?3)3) What are its operation(s) in China?What are its operation(s) in China?4)4) The benefits.The benefits.5)5) The problems.The problems.6)6) The futureThe future

Pick your TNC!!!Pick your TNC!!!MotorolaMotorolaNovozymes, Hewlett-Packard, ABB, Ericsson, Novozymes, Hewlett-Packard, ABB, Ericsson,

Microsoft, Kodak , Carrefour, Citigroup.Microsoft, Kodak , Carrefour, Citigroup.

Pick your TNC!!!Pick your TNC!!!

1.1. MotorolaMotorola2.2. NovozymesNovozymes

3.3. Hewlett-Packard Hewlett-Packard 4.4. ABBABB

5.5. Ericsson Ericsson 6.6. MicrosoftMicrosoft

7.7. KodakKodak8.8. CarrefourCarrefour9.9. CitigroupCitigroup