9. What is meant by “FDI”? The ads of doin FDI. Discuss work of Li & Resnick ('03) & how their conclusions compare/contrast w/ theories of FDI. Flashcards
The structure of the first part of this question
Definition > Horizontal > Vertical > Flow
Intro: Define FDI
FDI is an investment made by a firm/individual in one country, to another firm in another country
There are two forms of FDI. Define Horizontal FDI + Example. This is an example of a form of FDI
Horizontal FDI is a firm investing in the same industry abroad that it operates domestically
EG EE buying over T-mobile
Define Vertical FDI
Joining of firms who are at different stages of production
Occurs if a business invests in another business that plays the role of the supplier or distributer
What is Backward Vertical Integration
Essentially when a “Customer-facing” firm, takes over a supplier
Eg a jam factory taking over a fruit farm
What is forward Vertical Integration
Essentially when a supplier takes over a “customer-facing firm”
Eg. A pie manufacturer taking over a chain of delicatessens
What are the flows of FDI
Stock of FDI:
Refers to the value of the total FDI accumulated at a given time
Outflow of FDI:
Foreign Direct Investments going out of the country
Inflow:
Foreign Direct Investments going into the country
What are the two TYPES of FDI and two FORMS
Types:
Greenfield Investments
Aquisititions
Forms:
Vertical + Horizontal
Define greenfield investments + Advantages
The establishment of new factories overseas
EG Mcdonalds and Starbucks expanding
Ads:
Company has greater control eg Human Resources
location
Define an acquisition + Ads
Merge with a firm in a different country
EG Google and Nasa to make Google Earth
Ads:
They have access to experience within local mk + knowledge
Why FDI over others?
Exporting = trade barriers plus expensive to transport
Quote What does Li & Resnick (‘03) say
“Democratic institutions have conflicting effects on FDI”
what are the negative effects
Democratic institutions are more likely to focus on local business rather than FDI
= Lack of financial help for foreign investors
= drives foreign investors away
What are the positive effects
Many theorists have argued that well-establish democracies offer secure property rights and optimal environment for investors
Compare Li 2003 to other theories
Li & Resnick (‘03):
They say that FDI inflows are dependent on interaction of governments and MNE
Knickerbocker:
This theory states FDI flows are dependent on competition levels and rivarlries in the global market place
Vernon:
Thoery states that FDI flows in dependent on which stage products are in the product life cycle
