6 & 7 - Intl flows e.g. FDI & Remittances Flashcards
FDI is an investment in fixed assets by a firm, individual or government in a foreign country that can be used to conduct business operations. What’s inward versus outward, and net FDI?
Inward FDI refers to investments in the reporting country by non-resident investors Outward FDI refers to investments made by residents of the reporting country into other countries. The difference between inward and outward is called the net FDI inflow, which can be either positive or negative.
What’s horizontal versus vertical, and greenfield versus brownfield in the context of FDI?
Horizontal FDI occurs when a company invests in the same business in the foreign country as it operates domestically Vertical FDI occurs when a business invests internationally to provide input into its core operations usually in its home country or invests in a customer or distributor of its products Greenfield FDI occurs when a company or government enters a country to build new factories or stores from scratch Brownfield FDI occurs when a company or government entity purchases or leases existing production facilities to launch a new production activity
Here are the largest recipients of FDI in Africa. What’s the current trend of FDI flows to Africa, and who are these flows coming from?
Africa escaped the global decline in FDI as flows to the continent rose to US$46 billion in 2018, an increase of 11% on the previous year, according to UNCTAD’s World Investment Report 2019. These are the main investors of FDI in Africa.
What’s the relevance of “One Belt One Road” initiative to Africa?
AIIB = Asian Infrastructure Investment Bank
OBOR = One Belt, One Road or ‘New Silk Road’
The OBOR is working to construct six economic corridors to China.
Important projects:
- Addis Ababa-Djibouti Railway (AADR) and other Chinese-financed railroads across the African continent leading, inc. into South Africa
- With goods going to and from China, also make stops throughout
- Port of Djibouti and Gwadar
- Consider Kenya in the hub who is the way that can help to enter Africa: a lot of investment in East Africa.
What’s the significance of Dunning’s (1979, 1988, 1993) ownership, location and internalization / OLI-model?
(also known as the eclectic paradigm)
Sources of advantage that may underlie a firm’s decision to invest in a foreign country: useful guide for Multi-national enterprises.
Ownership advantages: for a firm to invest abroad, they must have firm-specific competitive advantages which allow it to overcome the costs of operating in a foreign country (such as a brand name, technology, patents, superior skills or access to capital markets etc.). Often called “headquarter skills”.
Geographic advantages: focus on the question of where an MNE chooses to locate. Geographical factors, natural resources and legislation influence the choice of where a firm chooses to expand internationally.
Internalization advantages: influence how a firm chooses to operate in a foreign country (control), trading off the savings in transactions, hold up and monitoring costs of a wholly- owned subsidiary, against the advantages of other entry modes such as exports, licensing, or joint venture.
Determinants of FDI
Focuse on effects arising from foreign/external (‘push’) versus domestic/ internal (‘pull’) factors. Push factors relate to the economic developments in industrialised countries that drive capital flows to recipient countries, and pull factors relate to the economic developments in recipient countries that attract capital flows.
Provide some examples of these.
GDP-linked bonds are promoted as a source of innovative sovereign finance. What are they?
Long-term government bonds with a coupon equal to a constant fraction of nominal GDP. Two types of GDP-linked bonds have been proposed.
– GDP-principal-indexed bonds - they have a specific maturity and pay a coupon equal to a constant fraction of a principal that is indexed to GDP (much like inflation-linked bonds).
– GDP-coupon-indexed bonds - the coupon is set equal to the nominal GDP growth rate plus a fixed premium (which acts as a floor ensuring investors receive a positive interest rate), while the principal does not vary.
