BUSI2025 Lecture Notes - Lecture 7: Foreign Direct Investment, Portfolio Investment, Quality Control
Document Summary
Foreign direct investment (fdi) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country (hill, 2018) Fdi preferred to exporting: high transportation costs, trade barriers. Fdi preferred to licensing: protection of technological know-how, retention of strategic control, capabilities not suitable for licensing. Fdi preferred to franchising: brand image, quality control, learning, market access. Global foreign direct investment (fdi) flows fell by 23 per cent to us. 43 trillion in 2017, well below the 2007 peak. Flows to developing economies remained stable at us billion, following a 10% decline in 2016. Inward fdi flows to developed economies fell sharply by 37 per cent to us billion. Increased risks, decreased returns on fdi, and escalating political tensions are the key contributors to the downturn in investment. In contrast, global capital flows increased in 2017 as bank lending and portfolio investment compensated for low fdi. The globalisation of the world economy: but returns on fdi are declining.
