(1) Over the same period, these countries also achieved a substantial increase in their exports, especially towards Western Europe.
The question we address in this paper is whether FDI inflows have been a significant determinant of export growth in 12 CEE countries. To do so, we use a pooled data for the period between 1996 and 2004 and attempt to account for the effects of FDI on host economy exports. We separate the potential effects into supply-increasing effects (capacity effects) and FDI-specific effects. The supply-increasing effects arise when FDI inflows induce increases in the host country's production capacity, which, in turn, increases export supply capacity. The FDI-specific effects arise because foreign capital inflows may incorporate different competitive advantages, such as superior knowledge and technology and thus, higher productivity, or better information about export markets as compared to local firms. We believe that differentiating between these two effects of FDI on exports is especially important in terms of policy implications. It is often argued that successful FDI-promoting policies should lead to, among other things, a significant increase in the host country's exports. ...
In the following section, we provide a discussion of potential channels through which FDI may affect exports. Based on the discussion in this section, we present our empirical model in the next section. The empirical results are presented and compared to those of previous studies in the penultimate section. The last section concludes the paper.
Effects of FDI on Exports - Theoretical Arguments
This section discusses some theoretical arguments regarding the different potential effects of FDI on the host country's exports.
Theory of Multinational Enterprise
The theory of multinational enterprise (MNE) examines conditions under which firms may undertake FDI and become MNEs. (2) Such decisions may have consequences for host country's exports and it is a goal of this section to review parts of this theory that predict effects of inward FDI on host country's exports.
Overall, the theory indicates that positive effects of inward FDI on a host country's exports may be expected when the host country and a home country have different factor intensities. In this case, the MNE may outsource some segments of its production process to the host country and export these (intermediate) products back to the home country (as well as other countries). Similarly, when the host country has a cost advantage and costs of trade are low (as compared to the trade costs of the home country), the host country may be used by the MNE as an export platform for serving its home market, as well as other markets.
The starting point for the theory of MNE is the idea that firms must have certain advantages in order to become multinational companies. Dunning
Since the late 1980s, Central and Eastern European (CEE) countries switched from a centrally planned economic system to one based on market forces. They privatized many state-owned enterprises, signed foreign trade agreements with other countries in the region, and have generally achieved a significant level of macroeconomic stability with improved growth rates…
In recent time, outward Foreign Direct investment has been significantly increased from China and India. Discuss the factors responsible for such a growth. Do you think International business theories (OLI and IDP) adequately explain the reasons for outward Foreign Direct investment?
The paper studies a number of broad ranging conceptual frameworks have been advanced that function as a means of articulating inflows of FDI. Democratic political structures have been demonstrated to be a major component of attracting foreign direct investment as such structures are more apt to stability and transparency.
FDI can also be defined as an investment of a company in a foreign country by building a factory within the host country. It is through a company’s direct investment in machinery, building and equipment in another country that foreign direct investment is made possible.
Eventually, countries will continue to entice high level of investment coming specifically from foreign enterprises. It is believed that trans-national firms will consider this as potentially beneficial for their operations.
Globalisation is also considered as a primary contributor to the methods used to develop foreign direct investments.
The growth experienced by many countries in Asia Pacific region provide an ample empirical evidence as to the effectiveness and impact of foreign direct investment on economic growth.
Foreign Direct Investment provide many benefits such as transfer of capital and technology to the country where the intended investment is made besides stimulating domestic growth as well as providing an opportunity for implementing best practices.
(Wikipedia, 2006). After the 1960's, foreign direct investments (FDI) have increased at a steady rate, with FDI stocks making up twenty percent of the world's Gross Domestic Product (GDP). Currently, China leads the world in foreign direct investments.
China and India are the two growing economies in Asia that have been frequently making news with regard to the FDI. Though these two are the two most populous countries being guided by the commonality of abundance of human resources, the disparity between these two countries in the inflow of FDI is as huge as the Himalayas.
The author states that a multinational firm in a developed country may face higher labor costs and higher production costs when locating its subsidiaries in its own home country, while a shift overseas may involve a larger initial investment but is economically beneficial in the long run because the margin of profits are higher.
The human resources of the countries were more educated and this developed the economy of the countries. The economy of the countries depended heavily on the exports and the FDI led to the development of the exports of the countries.
rategies that enable entities to diversify its assets and risk across diverse countries by engaging in contractual agreements with multiple potential partners. Companies may find it advantageous by producing in foreign countries compared to exporting to those countries based on
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