Foreign Direct Investment Flashcards
What is FDI?
An influx of capital, skills and technology which can boost economic growth, tax and jobs
The UK was the (1) top FDI destination in (2) our biggest FDI investments came from (3)
1 - EU
2 - 2015
3 - USA, India and China
Name the four types of FDI
Foreign Acquisitions
Offshoring
Transfer pricing
Foreign mergers
Define ‘offshoring’
Some TNCs build production facilities in foreign low wage economies e.g. Fender opened Mexican plant in 1987
Define ‘foreign mergers’
Two firms in different countries join forces to create a single entity e.g. Royal Dutch Shell has headquarters in both the UK and Netherlands
Define ‘foreign acquisitions’
When a TNC launches a takeover of a company in another country e.g. 2010 Cadbury was taken over by US company ‘Kraft’
How does the UK and USA views differ in foreign acquisitions
UK has few restrictions but Committee on Foreign Investment in USA closely scrutinises inbound foreign takeovers
Define ‘transfer pricing’
Some TNCs sometimes channel profits through a subsidiary company in a low tax country such as Ireland, the Organisation for Economic Cooperation and Development is attempting to limit this
Define FDI
The net transfer of funds to purchase and acquire physical capital such as factories
What are FDI net inflows
The value of inward direct investment made by non-resident investors in the reporting economy usually reported by year
What is inward investment stock?
The total accumulated level of FDI in a country
Name five benefits of FDI to MNCs
1 - lower labour costs 2 - proximity to raw materials 3 - avoid barriers to trade 4 - reduce transport costs 5 - access to more domestic markets and local knowledge
Give five advantages of Capital Inflows
- capital inflows create higher output and jobs
- capital inflows help finance a current account deficit
- long term capital inflows are more sustainable than short term portfolio inflows
- recipient country benefit from knowledge and expertise of TNCs
- abroad investment could lead to improved working conditions especially when TNCs more conscious of their public image
Give four potential disadvantages of FDI
- MNCs controlling rides makes national gov inferior
- FDI can bypass local environment laws
- Doesn’t benefit recipient country due to little distribution of wealth
- MNCs have poor working conditions and take advantage of lower wage costs
Give three reasons of why FDI has increased significantly in the past few decades
- lower transport costs
- increases technology increase low capital intensive start ups
- increases global trade and lower tariff costs