Balance-of-Payments Effects
A country’s balance-of-payment accounts track both its payments to and its receipts from other countries.
Баланса платежей страны слежения за состоянием счета и его переводы на счет и поступления его из других стран.
The current account tracks the export and import of goods and services.
Текущий счет отслеживает экспорт и импорт товаров и услуг.
The term offshore production refers to FDI undertaken to serve the home market.
Термин оффшорного производства относится к ПИИ и берет на себя обязательство обслуживать внутренний рынок
Flow of FDI: amount of FDI undertaken over a given time frame.
Stock of FDI: total accumulated value of foreign-owned assets at a given time.
The flow of FDI has been increasing FASTER than the growth of trade.
Why??
The decline in protection is not large enough.
Dramatic economic and political changes have made countries more attractive.
Globalisation makes firms see themselves as global players.
Causes of fdi
- Progress in technology;
- Progress in communications;
- Progress in transportation;
Allowing for the existence of HQ in another country.
Sources of FDI
The composition has been changing ever since WW2.
All the way until 1980 the USA dominated FDI outflows.
Japan has been gaining:
- from 6% in the late 1970’s;
- to 20% in the early 1990’s;
Recipients of FDI
Developing nations:
- from 16% until the 1990’s;
- to over 40% after 1994;
Due to:
- Rapid economic progress;
- Adoption of liberalisation policies;
Read this article about FDI in China and its institutional evolution. Here is some good info about FDI in India. This document gives in-depth info about S-E Asian FDI flows up to 2003. Closer to home, read about FDI flows in South-Eastern Europe.
USA:
- Inflow from USA firms abroad;
- Inflow for foreign firms;
Due to:
- Size of market;
- Wealth of consumers;
- NAFTA;
- Value of dollar relative to other currencies;
- A belief in the ability that foreign entities can manage in a BETTER way US workers and assets.
Motives for FDI
Aim: to earn higher returns than in home country and diversification of risk.
- Higher growth rates abroad;
- Favourable tax treatments;
- Better infrastructure;
Company reasons:
- Protection of proprietary differentials;
- Vertical integration [in the industry that provides inputs or sells the outputs];
- Horizontal integration [in the same industry that a firm operates in at home];
- Tariff avoidance;
- Take advantage of benefits offered by host countries;
Read The Merits of Horizontal versus Vertical FDI in the Presence of Uncertainty
Horizontal FDI
Why do the firms go to so much trouble and acquire or establish operations abroad?
FDI is expensive.
FDI is risky.
Factors that promote horizontal FDI:
Transportation costs
When excessive transportation costs are added to production costs, the good may be excessively expensive.
Products may have a low value-to-weight ratio and shopping is prohibitive.
Market imperfections [Internationalisation Theory]
Market imperfections: factors that inhibit markets from working correctly.
- Impediments to the free flow of products between nations;
- Impediments to the sale of know how;
Know-how is a competitive asset.
Two conditions must hold true:
a. Impediments to transport;
b. Impediments to the transfer of know-how.
Why doesn’t licensing work??
- Giving away technological advantage to a foreign competitor;
- Takes away tight control over manufacturing, marketing and strategy in a foreign country;
- The firm’s know-how may not be amendable to licensing [f.e. management and marketing know-how].
Following competitors
Firms follow their domestic competitors overseas.
Approach applicable to oligopolies—imitative behaviour.
Product life cycle
Conduct of FDI for the establishment of production facilities in the imitating country is often conducted by the SAME firm that pioneered the product.
Firms undertake FDI at particular STAGES of the product life cycle.
Location-specific advantages
Advantages that arise from the utilisation of resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to COMBINE with its own unique assets.
Case: Silicon Valley: the generator of computer knowledge—its location-specific advantage.