FDI's Flashcards
Definition: Economic Globalization
+ Consequence
the growing interdependence of locations and economic actors across countries and regions (ongoing process rather than event) which is leading towards a convergence of consumer preferences
Explain: Interdependence of locations
The reduction of distances and the increasingly blurry borders of countries have led to a decline in sovereignty of countries as well as their economic and political independence
E.g. migration, blending of cultures, homogenous consumption patterns, standardization
Explain: Interdependence of economic actors
- Economic actors are all formally and systematically organized entities
- New: widespread use by firms of all sizes and nationalities and therefore cross-border competition
- Tools: M&A, joint ventures, alliances
Definition and explanation: Interdependence
= mutual reliance between groups of actors
Reciprocity is hereby the degree to which the reliance is two-way
1) Central economy= host or home to MNE’s
2) Peripheral country= dependence on other more central countries and therefore obliged to consider external non-domestic dimensions
Formal regional integration vs Globalization
Interdependence caused by globalization is more of a consequence of increased cross-border activity, while regional integration is intended to cause it!
Definition: Foreign Direct Investment
Primary means to measure MNE activity since information is readily available and its more than just capital movements (stocks, shares) since they provide ownership and through it also strategic and managerial control of ongoing operations
FDI flows vs FDI stock
FDI flows measure new money coming in and out of a country as annual delta (but does not tell us a lot about ongoing economic activities).
FDI stock measures the total value of direct investments by adding up the annual flows (accurate indicator of FDI but underestimates old investments).
Enablers of International Business
1) Invention of technologies that enable international transportation (e.g. refrigerators) and international communication (e.g. Internet).
2) Adoption of Gold Standard reduced foreign exchange risks.
3) Home country institutions that ensure property rights and legal structures.
Explain: History of International Business
1950-1990: Dominance of Triad Countries
Drivers: US currency as major reserve currency; Japan/Europe recovering from WW2 damage due to US financial aids; long-term peace
1990-2017: Rise of new players (Asia, Latin America, Eastern Europe)
Drivers: Economic and financial liberalization; regional integration schemes; development of ICTs
Term to describe following scenario
“fewer firms are stuck in the middle”
Increasing degree of internalization (DOI) of MNCs
Globalization: Upstream/Downstream Push and Pull factors?
Upstream= beginning stage of the production process
Push: rising prices of inputs (seek cheaper inputs)
Pull: opportunity of economies of scale
Downstream= end stage of production process
Push: opportunity of maturing markets
Pull: barriers to export
Definition: Technology; Innovation
Technology represents the cumulative stock of innovations, while Innovation represents a change in the stock of knowledge. Both lie at the core of the greater interdependence that we see as part of globalization.
How did new technologies influence MNC’s?
Allowed firms to coordinate and control their activities in different countries much more efficiently and reliably to better exploit comparative advantages and economies of scale.
How to measure socio-political development?
Through the ability to claim and defend property rights, establish contracts that are legally enforceable, and do both at a reasonable cost and withing a reasonable timeframe
Definition: Institutions
= sets of common habits, routines, established practices, rules, or laws that regulate the ground rules of interaction between individuals and groups
