31 ĐỀ THI THỬ VÀO LỚP 10 - TIẾNG ANH - FORM MỚI 2025 - 40 CÂU HỎI - BÙI VĂN V...
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1. FDI, MNCs, and
host country policy
What’s special about MNCs?
Effects of FDI
FDI policy
2. Why worry about FDI?
Sales of foreign affiliates larger than total
world exports
MNCs account for 2/3 of world trade
FDI is growing faster than world production or
world trade
= Capital, jobs, technology, exports?
Expansion driven by international trade
liberalization, regional integration, technical
progress
Ari Kokko
3. Why do FDI and MNCs exist?
Understanding what is special about
MNCs helps understand their behavior
and predict their effects
Older explanations
– market disequilibrium and distortions
Newer explanations
– market failures and market imperfections
Ari Kokko
4. Market disequilibrium and
distortions as motives for FDI
Temporary disequilibria in markets
– Differential rates of return
– Cost differentials
– Valuation of currencies
Government imposed distortions
– Trade barriers
– Tax rules
– Investment incentives
Ari Kokko
5. Market imperfections
as motives for FDI
External effects and scale economies
could mean that doing A makes you
better at B.
– If R&D makes you a more efficient
producer, then you should expand through
FDI.
– Licensing will not be a good alternative,
because other firms (with no R&D) will
never be as efficient as you can be.
Ari Kokko
6. Market failures
as motives for FDI
Markets for intangible assets -
technology, trade marks, marketing -
often fail.
The transactions costs for finding a
price that satisfies both seller and buyer
are very high.
Firms based on intangible assets tend
to expand through FDI rather than
licensing.
Ari Kokko
7. Conclusions:
motives for FDI and MNCs
Many different types of FDI
Older explanations are not sufficient,
because FDI continues when
disequilibria and distortions disappear
New theories suggest that intangible
assets - technology, trade marks,
marketing skills - are central to MNCs.
Ari Kokko
8. Host country effects of FDI
Resource transfer effects: capital and
technology
Trade and balance-of-payments effects
Competitive and anti-competitive effects
Sovereignty and autonomy effects
Ari Kokko
9. FDI as a source of capital
Arguments:
– MNCs have plenty of capital and access to
international capital markets
– MNCs may help mobilize local savings
– MNCs may stimulate aid flows
Objections:
– not much capital transfer going on, most of
investments financed locally
– FDI is an expensive source of funds
– profits are repatriated
Ari Kokko
10. FDI as a source of technology
Arguments:
– most commercial technology owned by
MNCs
– few countries can afford comprehensive
R&D programs on their own
– benefits possible even if MNCs keep
ownership of technology: spillovers
Objections:
– MNC technology may be too expensive
– MNC technology may not be appropriate
Ari Kokko
11. Spillovers
When locals benefit from the presence
of MNCs without paying the full price.
Several possible channels:
– Demonstration effects, ”copying” MNCs
– Training of employees who may leave the
MNCs for jobs in local firms
– Forward and backward linkages
– Local firms are forced to work harder
because of tougher competition
Ari Kokko
12. Evidence on spillovers
Lots of case studies showing that locals
learn from MNCs
Spillovers are not automatic. Effects are
determined by the local environment:
– Technological capability and labor skills
– Level of competition
– Trade policy
Ari Kokko
13. Balance-of-payments effects
Arguments:
– shortage of forex for imports of investment
goods a common development problem
– both export-oriented and import-
substituting FDI should improve BoP
Objections:
– MNCs import a lot. Import-substituting
MNCs, in particular, may create import
dependence
– MNCs repatriatiate profits
Ari Kokko
14. Competitive and
anti-competitive effects
Arguments:
– MNC entry may stimulate competition,
efficiency, and development
– MNCs often enter industries where entry
barriers for local firms are high
Objections:
– MNCs are stronger and may outcompete
local firms. Risk for foreign oligopolies and
monopolies
Ari Kokko
15. Sovereignty and autonomy effects
Arguments:
– Foreign ownership always carries a cost.
Foreign MNCs may push for policies that
are good for them but not necessarily for
the host country
Objections:
– Who cares if the Americans own our
factories, as long as we get jobs and tax
revenue
Ari Kokko
16. Other effects
Negative externalities from FDI, e.g. on
the environment?
Cultural imperialism?
Inappropriate consumption patterns -
Camel, Heineken, and Yves St. Laurent
in poor countries?
FDI may create dependence on foreign
capital
Ari Kokko
17. FDI policies
What do host countries want from FDI
and foreign MNCs?
What policy measures are available to
host country governments?
How effective are FDI policies?
Ari Kokko
18. Host country objectives
To acquire
– capital and jobs
– technology, production, and R&D skills
– organizational and managerial skills
– marketing and exporting skills
To retain national control over strategíc
industries and strategic decisions
Ari Kokko
19. Policy measures
Investment promotion - to attract foreign
MNCs
Market access restrictions - to retain
national control
Regulation of MNC operations - to
make the foreign MNCs behave in the
right way
Ari Kokko
20. Investment promotion
Information
– Consumer preferences, markets, production
factors, rules and regulations
Incentives
– Investment and profit repatriation guarantees
– Beneficial tax rules - tax holidays, reduced rates,
investment allowances, and other fiscal incentives
– Tariff protection
– Subsidies and grants
– Provison of infrastructure - industry parks and
export processing zones
Ari Kokko
21. FDI incentives
Used by almost all countries
Financial incentives in OECD - fiscal
incentives in developing countries
Probably becoming more important for
corporate decision making…
– WTO membership makes other policies more
similar across countries
…but also risk for excessive subsidization
– politically attractive
– competition between host countries
– uncertainty about spillover benefits
Ari Kokko
22. Market access restrictions
Licensing requirements (where
applications are individually screened)
Outright prohibitions
– military industries
– mass media
– air and land transports
– banking and finance
– telecommunications
Ari Kokko
23. Regulation of MNC operations
Performance requirements
– technology transfer
– exports
– employment
– local content
Requirements for joint ventures
– to secure transfer of technology to local
industry
Ari Kokko
24. Are FDI policies efficient?
Prohibitions work
Performance requirements not very efficient -
easy to get around
– and increasingly in conflict with WTO rules
Investment incentives increasingly important,
but mainly because everyone else is offering
them
– fundamentals like political stability, market size,
and growth rate more important
– risk for ”bidding wars” between host countries
– better to focus on industrial policy?
Ari Kokko
25. Example:
Objectives of FDI policy in India
technology transfer avoid concentration
technology diffusion diversification
limitations on foreign local content
ownership export promotion
save foreign advancement of
exchange Indians
national local R&D
independence regional development
priority sectors capacity utilization
employment creation
Ari Kokko
26. Consequences of
Indian FDI policies
Very little FDI until early 1990s
Major MNCs left because of regulations
Reform recommendations in late 1980s
– liberalize and simplify bureaucracy
– focus on employment creation and labor-intensive
industry
– allow foreign majority ownership
Reforms and somewhat increased inflows of
FDI from early 1990s
– but still only a fraction of that directed to China
Ari Kokko