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Foreign Direct Investment (Multinational company impact significantly in…
Foreign Direct Investment
Multinational company impact significantly in the World trade
Governments help to multinational companies to this expansion
Investments made by no residents in a country with the objective of controlling the company (10% according to IMF)
See Ways of investing the multinational
60s: northamerican and european multinationals by branches. Nowdays even small and medium sized companies
Differences among flows (examples acquisition of companies), stock (accumulated flows) and control
neoclasic model: international equality of relative prices.
Mundell
yes based on displacement of capital factor (better profitabilities). From developed countries to developing contries until equalities
Hymer-Dunning
: Ownership, Location and Internalization (OLI Paradigm).
Location Benefits o reduction on costs
Technology
Labour (low cost high formation)
raw materials
tax and regulatory environment
Internacionalization: renting to third parties (local company knows the target country or incentives to national industry
Take advantage of the generation cost of both tangible and intangible asset to be applied on aboard
investing
exporting
renting licences
Melitz: Higher productivity has more capacity to invest in other markets
Geographical structure: stock focus on developed countries. Main issuers are developed countries but increasing developing countries (mexican, russian and brazilian companies). Main receivers are developed countries
Transformation of comunist countries into market economies
Process of integration (UE)
Opennes of emerging markets (Brazil, Russia and India)
Tax heaven
Sectorial structure: Manufacturing mainly (location advantages such as natural advantages (tourism)). Growing services and recently energy sector
Developed countries: wide markets and high acquisition power
sophisticated, technological and reputation (telecommunication or banking sector)
Developing countries: raw materials, low labour costs and wide market but not exploited
Table: Importance of multinationales
Effects of Direct foreign investment
60s and 70s: location advantages. Saving vs Investment
Technology: R&D but main office higher than branches. Frequently, buy the R&D from the main office
Technological dependence of developing countries (branches) from developed countries (main office)
Generation of employment. Higher phisical and tecnological capital are more productive the main office (they do not want to contribute to increase in formation of branches personnel)
Normally, they export more than import
Global chain: comparative advantages.
Intra-firm: supplier-client (tax heaven. Google in Ireland
Positive effect: infrastructures, qualification of workers, promotion of commercial capacity and access to markets and creation of employment. Negotiations with companies (grants to companies). Growth of the company (Naples!!)