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13 Cards in this Set

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What are the political ideologies towards FDI?
The radical view

The free market view

Pragmatic nationalism

From the 1990s onwards, convergence towards more liberal national positions re. FDI in developed and developing countries
-There remains some variations in countries’ approach to FDI.
-Remaining uncertainties in countries’ FDI approach e.g. recent surge in nation-states’ scepticism towards FDI
What are the benefits of FDI for the host country?
Resource transfer effects
-FDI can bring capital, technology, and management resources

Employment effects
-FDI can bring jobs

Balance of payments (BoP) effects
-FDI can help a country achieve a current account surplus.
But possible negative impact on BoP resulting from the negative impact of the imports that may be undertaken by the MNCs’ subsidiaries

Increase in level of competition and economic growth

Reverse resource-transfer:
-MNCs gain knowledge from their international exposure which they can then use in their home market.
What are the risks of FDI for the host country?
Risks of host governments’ loss of national sovereignty and economic independence

FDI as a potential source of social disruption: rural exodus, rising consumerism, breakdown of traditional community structures

Balance of payments (BoP) effects:
Possible negative impact on BoP resulting from the negative impact of the imports that may be undertaken by the MNCs’ subsidiaries

Employment effects:
FDI may be a substitute for domestic production (i.e. offshoring)
-International trade theory: a home country benefits from specialising in activities where it has comparative advantage

Reverse resource-transfer:
Knowledge transfer may not necessarily align with the home country’s national interest.
What are the home country's measures to encourage outward FDI?
Government-backed insurance programs.

Loans, funds to firms wishing to internationalise.

Pressures on host countries to open up their markets.
What are the home country's measures to restrict outward FDI?
Limits on capital outflows.

Taxes to encourage domestic investment.

Formal or informal restrictions prohibiting domestic firms from investing in certain countries.
What are the possible host country policies towards inward investment by foreign firms?
Terms of market access:
-Exclusion of foreign firm from certain industries.
-Restrictions on the degree of foreign ownership of domestic firms.
-Government screening of investment proposals.

Performance requirements:
-Requirements for a certain level of local content in MNC’s activities.
-Requirements for a minimum level of exports.
-Requirements related to technology transfer.
-Requirements for the involvement of local personnel in managerial positions.
-Restrictions on the remittance of profits and/or capital abroad.
-Level and method of taxing profits of MNCs

Incentives to attract FDI:
-Competitive bidding via tax concessions, low-interest loans, grants, subsidies.
What are the MNCs objectives that conflict with the host state's objective according to Dicken (2011)?
Performance:
-Maximise profits
-Minimise cost base

Technology:
-Undertake Research & Development (R&D) at optimal locations.

High-order functions:
-Locate headquarters and other high-order functions at optimal locations.

Responsiveness:
-Retain flexibility to move profits in optimal manner.
-Retain flexibility to relocate operations to meet changing conditions.
-Retain flexibility to use the labour force.
What are the host state's objectives that conflict with the MNCs' objective according to Dicken (2011)?
Performance:
-Maximise GDP growth
-Maximise employment opportunities

Technology:
-Stimulate the development of locally-rooted technology

High-order functions:
-Maintain indigenous headquarters
-Attract and retain key operations of MNCs

Responsiveness:
-Retain power to gain a fair return on local operations of MNCs through taxation.
-Maximise extent and benefits of local supplier linkages.
-Prevent closure of MNCs’ local operations
-Develop a flexible, highly skilled, high-earning labour force.
What does the relationship between MNCs and host governments revolve around according to Dicken (2011)?
Their relative bargaining power: the extent to which each side can implement their preferred strategies

The outcome of their relationship will depend on the relative bargaining power of each side. Their bargaining power will be function of the power resources each side has (cf. next slide).
What are the MNCs' and Host countries' sources of power?
How have the power-balance between MNCs and host countries changed over the years?
1970s-1980s: Host governments tended to have the upper hand over MNCs

1980s onwards: Host governments engaged in ‘locational tournaments’ and competitive bidding as multiple countries opened their markets to FDI => their bargaining power weakened (Dicken 2011; Ramamurti 2001)

In addition to the MNC-host government bargaining relationship, one needs to consider the bargaining relationship between host and home governments through bilateral and multilateral negotiations (Ramamurti 2001) This means that the negotiations also go through the home country of the MNC
What is "the obscolescing bargaining" according to Dicken (2001)?
Once the MNC has invested in the host country, the risks associated with the investment diminish and the host country gains various skills which diminish the value of the skills possessed by the MNC.

Stronger effect in natural-resource-based industries than in industries where global integration of operations is common
How has the problem of transfer pricing and tax avoidance changed over the year?
Governments have set up favourable tax structures since the 1980s which supported/did not interfere with this type of practices.

Post-2008, efforts by national governments and international institutions to crack down on MNCs’ ability to exploit the differences in taxes, tariffs, duties etc. across countries.

But governments still have to tread carefully to avoid any negative impact on FDI