Product Life Cycle Theory

   Raymond Vernon developed this theory in the 1960s. The international product life cycle theory stresses that a company will begin to export its product and later take on foreign direct investment as the product moves through its life cycle. Eventually a country's export becomes its import.

26. Forces of globalization (Чинники глобалізації)

Global economic integration is not a new phenomenon. Some communication and trade took place between distant civilizations even in ancient times.

Three fundamental factors have affected the process of economic globalization and are likely to continue driving it in the future. First, improvements in the technology of transportation and communication have reduced the costs of transporting goods, services, and factors of production and of communicating economically useful knowledge and technology. Second, the tastes of individuals and societies have generally, but not universally, favored taking advantage of the opportunities provided by declining costs of transportation and communication through increasing economic integration. Third, public policies have significantly influenced the character and pace of economic integration, although not always in the direction of increasing economic integration.

These three fundamental factors have influenced the pattern and pace of economic integration in all of its important dimensions.

Globalization causes a significant change across the world economy. This occurs because of an increase in interaction of households and firms all over the world who exchange goods and services between each other. As technology and productivity of many countries develop year by year the world community is less constrained with political borders.

Exports and Imports and the measure of economic openness more than doubled over recent decades in countries with advanced economies. In order to sustain a healthy trade among different nations it was sufficient for the world to form one global institute which may control the overall performance and conduct international trade policies.

We live in a time of worldwide change. What happens in one part of the world impacts people on the other side of the world. People around the world are influenced by common developments.

The term “globalization” is used to describe this phenomenon.

The types of food we eat, the kinds of clothes we wear, the variety of technologies that we utilize, the modes of transportation that are available to us, and the types of jobs we pursue are directly linked to “globalization.” Globalization is changing the world we live in.

27-28. Foreign Investment in Less-developed Countries

Less-developed countries (LDC) are countries with lower GDP relative (порівняно) to other countries. Less developed countries are characterized by little industry and sometimes a comparatively high dependence on foreign aid(допомога). Less developed countries often undertake (розпочинати) programs of development, with greater or lesser interventions on the part of the national governments. They are major borrowers from organizations such as the World Bank.

Foreign direct investment (FDI) is prized by less-developed countries for the diversity of assets that multinational enterprises (MNEs) deploy with their investments. Most of these assets are intangible in nature and are particularly scarce in less-developed countries. They include technology, management skills, channels for marketing products internationally, product design, quality characteristics, brand names, etc.

This is a rather important issue. In recent theoretical and empirical work, investment has been identified as a key variable determining economic growth.

The past 20 years have been both an exciting and frustrating age for lesser-developed countries (LDCs). In 2010, net private capital flows to LDCs had grown nearly 200% since 2000, reaching a total of $557 billion. Investors, who look for increased returns and aim to diversify risk, have fueled the investment interest in developing countries. Although investments in the economies of LDCs have increased, much of this capital (namely portfolio capital and bank and trade related lending) has a high degree of volatility and is subject to massive inflows or outflow resulting from speculative attacks.

Most of the capital is usually invested in oil, gas, gold or other natural resources. Investors are also interested in cheap labor force (sometimes well-educated too), tourism, recreation and other resources located in LDСs.

The education of a nation, especially in technological disciplines, is important when attracting FDI. Apparently, FDI is moving from an unskilled type of labor to a more specialized, highly technical type of labor. LDCs should concentrate on maintaining long-run economic stability when attempting to attract FDI. By producing long-run economic stability, a country's government signals to MNCs that it is capable of producing economic success because it has done so in the past.

Or

Less-developed countries (LDC) are countries with lower GDP relative too ther countries. Less developed countries are characterized by little industry and sometimes a comparatively high dependence on foreign aid.

Despite its substantial benefits, foreign investment is often discouraged by LDC governments. The resistance reflects a fear of becoming dependent on foreign investors.

Like foreign investment, loans represent an opportunity to increase current investment without reducing current consumption.

Unlike loans, foreign aid refers to money or resources given to LDCs for which no repayment is required. Foreign aid is given on a bilateral basis or through multinational agencies.

The most prominent lending agency is the World Bank.