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1. What other costs and benefits might arise from inward FDI(IFDI) 2. Are these costs and benefits likely to be determined by country and firm level of development and growth Use examples to explain your answer - Essay Example

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Allowing FDI gives the local business organizations an opportunity to share skills, knowledge and experiences with multinational companies that come to invest in the country. Knowledge assets that multinational organizations have such as trademarks, proprietary technology and…
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1. What other costs and benefits might arise from inward FDI(IFDI) 2. Are these costs and benefits likely to be determined by country and firm level of development and growth Use examples to explain your answer
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Extract of sample "1. What other costs and benefits might arise from inward FDI(IFDI) 2. Are these costs and benefits likely to be determined by country and firm level of development and growth Use examples to explain your answer"

Inward Foreign Direct Investment Q1 Allowing FDI gives the local business organizations an opportunity to share skills, knowledge and experiences with multinational companies that come to invest in the country. Knowledge assets that multinational organizations have such as trademarks, proprietary technology and patents may spill over to local firms of the host nation (Roache, 2006). Such spillovers usually operate through industry lines. For instance, affiliates of a multinational companies allow domestic producers to easily access intermediate inputs, knowledge and specialized technologies thus helping them to be more productive. Other benefits such as labor turnover operate through regional lines. For example, when FDI was allowed in the U.S there was significant movement of scientists between local and foreign firms.
Although the domestic firms enjoy benefits of spillover from the foreign firms, the government incurs subsidy costs. In an effort to encourage foreign investment in the local market, most governments usually, offer subsidies and tax breaks to foreign firms. When the cost of subsidies increases taxation increases thus hurting the local economy. For example, in the year 1992 the maximum corporate tax in US was 34% and 33% in UK meaning that these governments only gained approximately 1/3 of the total gains (Maskus, 1994).
Q2
Costs and benefits of allowing FDI is likely to be affected by the level of development and growth of the country and firms. For example, the government only gives subsidies to new firms but after they become stable, such firms sustain themselves. Therefore, when firms more continue to generate more profits, increase market share and reduce risks the country’s economy becomes more stable. The benefits continue to increase while the costs decrease. Foreign firms that are underperforming offer less benefit to the domestic firms and the host governments and so the governments have to spent more to make them profitable and operational (Moran, 2005).
References
Du, P. M. (2000). Foreign direct investment in transitional economies: A case study of China and Poland. New York: St. Martins Press.
Froot, K. (1993). Foreign direct investment. Chicago: University of Chicago Press.
Goldstein, I., Razin, A., & National Bureau of Economic Research. (2005). An information-based trade off between foreign direct investment and foreign portfolio investment. Cambridge, MA: National Bureau of Economic Research.
Haskel, J., Slaughter, M. J., Pereira, S. C., & National Bureau of Economic Research. (2002). Does inward foreign direct investment boost the productivity of domestic firms?. Cambridge, MA: National Bureau of Economic Research.
Maskus, K. E., & Webster, A. (1994). Comparative advantage and the location of inward foreign direct investment: Evidence from the UK and South Korea. London: Trade Policy Research Centre.
Moran, T. H., Graham, E. M., & Blomström, M. (2005). Does foreign direct investment promote development?. Washington, DC: Institute for International Economics.
Musciacco, E., & Kings College London. (2011). The factors affecting regional location and inequality of inward FDI distribution: The Italian case.
Roache, S. K. (2006). Domestic investment and the cost of capital in the Caribbean. Washington, D.C.: International Monetary Fund, Research Dept.
Spatareanu, M. (2004). Essays in foreign direct investment, cost of capital, and high-tech investment.
Stephan, J. (2013). The technological role of inward foreign direct investment in Central East Europe. Read More
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