Foreign Direct Investment (FDI) acquired an important role in the international economy after the Second World War. The increase of the volume of foreign direct investment was so sharp that economists considered FDI as a new stage of Capitalism after the classic Marxist theories of Imperialism. The country with the highest volume of FDI outflows after the Second World War until the 1980s were the United States, which undermined the role of Great Britain, the "traditional" country of FDI during the pre-war period. With the exception of these two countries and Japan, which had established legal restrictions in relation to FDI inflows, other important countries of FDI outflows were Germany, Holland, France and Canada until the mid-1970s.
Tags: Advantages of Foreign direct investment, Risks of Foreign direct investment, Benefits of FDI, FDI foreign direct investment, Foreign direct investment statistics
[...] MNEs should primarily possess certain ownership advantages in order to support their decision to invest in a foreign market and to exploit their competitive advantages within the context of monopolistic force that these advantages provide. Location-specific advantages: Each country has its own factors of production, level and quality of consumers, legislation, climate, etc, which may encourage or discourage a MNE to invest in a particular foreign market. Location-specific advantages theory encompasses the advantages that arise from using resource endowments or assets tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets such as technological, marketing and/or management know- how. [...]
[...] Product Life-Cycle Theory fails to explain why it is profitable for a firm to undertake FDI instead of continuing export from home or licensing a foreign firm to produce its products. It simply argues that once a foreign market is large enough to support local production, FDI will occur. Hence, it fails to identify when it is profitable to invest abroad. Advocated of Vernon's theory assert that beyond the differences in the production costs, there are also other factors that make international trade disadvantageous, such as various forms of governmental interventionism, but also the aspiration of the U.S. [...]
[...] All three products are high technology products, imported from developed countries such as the USA, Japan or the European Union. However, their production is being made in developing countries such as China, Korea or Taiwan due to the lower labour costs in these countries. So, accepting that those technology intensive products are manufactured by U.S. MNEs and produced by their subsidiaries in the foreign markets of Asia, it is obvious that firms undertake FDI at particular stages in the life cycle of a product they have pioneered. [...]
[...] MNEs after the Second World War based on the characteristics - advantages of location advantages. In particularly, basing his analysis on the original idea of marketing, he claimed that the life of a product has three phases, which are also related to its production. According to Vernon, the stages of production are the following: New Product: this stage is related to the introduction of a new product in the market, which is produced in the United States, as Vernon developed his theory in order to explain the U.S. [...]
[...] Before proceeding to the analysis of each FDI Theory, it should be pointed out that, as in any other part of economic theory, similarly in the analysis of international production there is a variety of theories that aim at explaining foreign direct investment. This is in effect because the international production can be interpreted on a macroeconomic level, which analyzes the flows and the reserves of FDI inflows and outflows and on a microeconomic level, which analyzes MNEs as a separate type of enterprise. [...]
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