IB 3101 Lecture Notes - Lecture 7: World Trade Organization, Capital Account, Externality

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Published on 19 Mar 2017
Week 7 Chapter 7 Foreign Direct Investment
Foreign Direct Investment (FDI)
When a firm invests directly in new facilities to produce &/ or market in a
foreign country
o Greenfield investments
When you develop the whole business in that foreign country
from scratch
o Acquisitions and mergers (through local firms in that country)
Minority <10%
Majority 50% - 90%
Total ownership 100%
o Most FDI in form of acquisition and merger (40%-80%)
Firms prefer this because:
Quicker to execute
Less risky
Increase efficiency of acquired unit
Once it does this it becomes a multinational enterprise (MNE) or MNC
Flow of FDI
Outflow vs inflow
Receiving the most FDI (inflow)
Giving the most FDI (outflow)
Stock of FDI
Total accumulated value of foreign owned assets at a given time
The growth of FDI
1. A fear of protectionism
Fear in the future there will be trade barriers
2. Political and economic changes
3. New bilateral investment treaties
4. Globalization of the world economy
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