ForeignDirectInvestment.pptVIP

Foreign Direct Investment Discussion Section February 16, 2007 Brian Chen Agenda Administrative Index cards Starbucks FDI case due Word on section participation Review Political Economy of FDI Concepts/Definitions Application: Chinese Corporations Law relating to wholly foreign-owned enterprises Foreign Direct Investment (Time permitting) Concepts/Definitions Review International Trade “Chicago school” economists tend to favor free trade But there are political and economic grounds to governments to intervene to check absolute free trade These tools include: Tariffs, subsidies, quotas, administrative policies, local content requirement, antidumping policies Boeing v. Airbus Both received government subsidies: One direct, one indirect, and the question is whether one form is worse than the other Also, there may be room to argue whether there are acceptable political and economic grounds for government intervention in these industries Chapter 8 The Political Economy of Foreign Direct Investment Political Economy of FDI: Outline Three Views Radical View “Imperialist” extraction of host country wealth Implication: Always bad for the host country Free Market Different countries have different comparative advantages; best to allow countries to engage activities for which they do so most efficiently Implication: Always good when countries are specializing in activities for which they have a comparative advantage Pragmatic Nationalism Belief that FDI has costs and benefits, and whether to engage in FDI depends on whether the benefits exceed the cost What are the costs and benefits to the host country? Benefits Costs FDI: Benefits to the Host Country Resource Transfer Effects Capital MNE invests capital in foreign markets Technology Research supports that MNEs do transfer technology when they invest in a foreign country Management When MNEs invest and manage in a foreign country, they often transfer management skills to the host country’s workforce Employment Effects MN