of FDI refers to the amount of FDI undertaken over a given time period, whilethestockof FDI refers to the total accumulated value of foreign-owned assets at a giventime.Outflowsof FDI are the flows of FDI out of a country, andinflowsof FDI are theflows of FDI into a country.Slides 8-5-8-10Trends in FDIThere has been a marked increase in both the flow and stock of FDI in the worldeconomy over the last 30 years.While the United States remains a top destination for FDI flows, South, East, andSoutheast Asia, and particularly China, are now seeing an increase of FDI inflows, andLatin America is also emerging as an important region for FDI.Another Perspective: FDI in China continues to be strong, and India is emerging asanotherhotspotforFDI.Tolearnmoreaboutthesemarketsgoto{}and{-in-january.html}.Another Perspective: In contrast to China and India, Britain and the EU countries ingeneral are seeing inward FDI drop.A similar trend can be found in the United States.To learn more about these trends go to{}
Chapter 08 - Foreign Direct Investment8-5Slides 8-11-8-12The Source of FDISince World War II, the U.S. has been the largest source country for FDI.The UnitedKingdom, the Netherlands, France, Germany, and Japan are other important sourcecountries.Slides 8-13-8-14The Form of FDI: Acquisitions Versus Greenfield InvestmentsMost cross-border investment is in the form of mergers and acquisitions rather thangreenfield investments.Slides 8-15-8-16Why Foreign Direct Investment?Why do firms choose FDI instead of exporting or licensing?Internalization theory(also known asmarket imperfectionstheory) suggests that licensing has three majordrawbacks.Slides 8-17-8-18The Pattern of Foreign Direct InvestmentKnickerbocker looked at the relationship between FDI and rivalry in oligopolisticindustries (industries composed of a limited number of large firms) and suggested thatFDI flows are a reflection of strategic rivalry between firms in the global marketplace.Vernon argued that firms undertake FDI at particular stages in the life cycle of a productthey have pioneered.According to theeclectic paradigm, in addition to the various factors discussed earlier, itis important to consider:location-specific advantages- that arise from using resource endowments orassets that are tied to a particular location and that a firm finds valuable tocombine with its own unique assetsandexternalities- knowledge spillovers that occur when companies in the sameindustry locate in the same areaSlides 8-19-8-20Political Ideology and Foreign Direct InvestmentIdeology toward FDI ranges from a radical stance that is hostile to all FDI to the non-interventionist principle of free market economies.Between these two extremes is anapproach that might be called pragmatic nationalism.Theradical view
The flow of FDI refers to the amount of FDI undertaken over a given period(normally a year). The stock of FDI refers to the total accumulated value offoreign-owned assets at a given time. We also talk of outflows of FDI,meaning the flow of FDI out of a country.HAS FDI BEEN GROWING OR DECLINING? WHY?
What are the Advantages of Foreign Direct Investment?
Limitations of Licensing. A branch of economic theory known asinternationalization theory seeks to explain why firms often prefer foreigndirect investment over licensing as a strategy for entering foreign direct