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International Trade and FDI

International Trade and FDI. Unit I. Definition. A form of investment that gives controlling interest in a foreign company The ambiguity: FDI is good yet dangerous Home and host country influence on FDI. What MNEs have to offer. Stakeholders Tradeoff. Companies must satisfy:

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International Trade and FDI

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  1. International Trade and FDI Unit I

  2. Definition • A form of investment that gives controlling interest in a foreign company • The ambiguity: • FDI is good yet dangerous • Home and host country influence on FDI

  3. What MNEs have to offer

  4. Stakeholders Tradeoff • Companies must satisfy: • Shareholders • Employees • Customers • Society • But trade off exists • The philosophy, actions and goals of MNEs are thus unique matching the situation it is in..

  5. Balance of Payment Effect of MNE • FDI brings both capital inflow and capital outflow • Thus net balance-of-payment effect is important • B=(m-m1)+(x-x1)+(c-c1) • B=balance of payment effect • m=import displacement • m1=import stimulus • x=export stimulus • x1=export reduction • c=capital inflow for purpose other than x or m payment.. remittances • c1=c=capital outflow for purpose other than x or m payment.. remittances

  6. Growth and employment effects • FDI by a company for: • Fuller utilization of resources • Immobility of capital and technology from one industry to another • Move operations to low wage country: • Horizontal and vertical FDI • Host country advantage: • Inflow of capital and technology • Host country losses:...

  7. MNE and ethical behavior • Concept : • Relativism: when in Rome do as Romans do.. • and Normativism.. There are universal standards of behavior.. • Cultural foundations: • Walk in between fine lines of both of the above • Negotiate between evils • Respect cultural identity • Overpower corruption • Sustainability

  8. http://www.indiainbusiness.nic.in/investment/for_dir_investment.htmhttp://www.indiainbusiness.nic.in/investment/for_dir_investment.htm • FDI cap in India: • 1 FDI ST_110412.pdf • Page 8 and 9 • FDI ban in India • 1 FDI ST_110412.pdf • Pg 9

  9. Sector-wise distribution of FDI inflows During August 2012, top 10 Sectors attracting highest FDI inflows Were: • Services Sector (19 per cent), • Construction development: Townships, housing, built-up infrastructure(12 per cent), • Telecommunications (7 per cent), • Computer Software & Hardware (6 per cent), • Drugs & Pharmaceuticals (5 per cent), • Chemicals (other than Fertilizers) (5 per cent), • Power (4 per cent), • Automobile Industry (4 per cent), • Metallurgical Industries (4 per cent), • Petroleum & natural gas (3 per cent)

  10. Country-wise distribution of FDI inflows Top 10 investing countries during August 2012 were: • Mauritius (37 per cent), check: http://www.worldhunger.org/articles/10/editorials/sharife2.htm • Singapore (10 per cent), • U.K (10 per cent),Japan (7 per cent), • U.S.A (6 per cent), • Netherlands (4 per cent), • Cyprus (4 per cent), • Germany (3 per cent), • France (2 per cent), • U.A.E (1 per cent)

  11. FDI in retail…

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