Globalization
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INTRODUCTION TO FOREIGN DIRECT INVESTMENTS (FDI)
New sources of FDI are emerging among developing and transition economies. Foreign Direct Investment is one of the most important forms of international capital flows. FDI has been growing steadily in its importance, relative to other forms of international investment, for the last 30 years and has accounted for about three quarters of total International Capital Flows from 1998 to 2003. (World Investments, 2006 [Online]) Particularly for developing countries, FDI has been the most important source of foreign investment and an important source of technological spillovers.
Despite the fact that over the past three decades, the rate of growth in the number of studies devoted to FDI has probably surpassed that of the FDI itself, the number of issues in the area that require economic analysis does not seem to be decreasing. But from last couple of years developing countries or economies are also investing as Outward Foreign Direct Investment in other developing countries or developed countries for example Asian developing countries such as India and China etc. are now investing their projects in developing countries as well as in developed countries.
These Asian countries are attracting lots of foreign direct investment on availability of their resources such as low cost labour, cheap material etc. From last couple of years Ireland has also attracted foreign direct investment because of their resources and the taxation policy which is only 12.5%. ( FDI Introduction, 2001. [Online])
How is FDI affected by the growth of newly created assets in emerging markets? How is the advent of electronic commerce likely to change the patterns of competitive advantage of firms and locational advantage of countries? What is the impact of FDI on economic growth and development in host countries? How does FDI affect the volatility of the world economy? Should governments and international institutions control FDI flows and, if so, how can they influence them? These are just a few of the currently unanswered or partially answered questions.
In a globalised world, multinational enterprises (MNEs) and Foreign Direct Investment (FDI) have grown dramatically. European-based MNEs are investing in companies outside Europe, while firms outside Europe have also increased their investment in European companies. (Reduce Risk, 2005. [Online])
Although trade is the crux of European economic development, the strength of European firms and the welfare of Europes workforce are also important, so the partners wanted to learn how FDI and the growing presence of MNEs affected European firms, their workforce and the labour market in general. Focusing on five countries: Ireland, Italy, Spain, Sweden and the United Kingdom, the project partners set out to discover what effect FDI has on domestic employment, and to learn to what extent foreign (i.e. from outside Europe) investments affect domestic economies, and whether or not they strengthen national firms activities. They also wanted to know more about MNEs activities in general, and whether they operate differently from national firms in labour markets. (FDI and MNES, 2004. [Online])
Policy objectives
To develop a comprehensive conceptual framework to analyze the labour market impact of inward and outward FDI, including comparing existing patterns with what might happen without FDI;
To construct harmonized cross-country firm-level panel data sets, based on information provided by the firms;
To analyze the geographical distribution of European FDI flows (through an aggregate empirical analysis);
To analyze the impact of outward FDI on European countries using firm-level panel data and to see whether it was a substitute or a complement to parent-firms home country employment;
To analyze the impact of inward FDI on European countries using firm-level panel data;
To analyze the policy implications of all these.
OUTWARD FDI
Outward Foreign Direct Investment is opposite to the Foreign Direct Investment. In Outward Foreign Direct Investment is regarded as a capital flow from the developing countries to developed countries. Now a days lots of developing countries are merging and acquiring the well known global companies such as Indian company Video corn has acquired three big companies with in 1 years and the company has acquired Daewoo Electronic corporation of Korea, Thomson Global picture tube business and 91.85% shareholding of Electrolux Kelvinator India , the Indian subsidiary of AB Electrolux of Sweden. (Financial Express, 2006)
In 1960s and 1970s developing countries mainly used to expend their business or invest their money only in other developing countries, which was close to their home countries such as Indian companies used to invest in China, Korea, Singapore but now scenario has completely changed and the companies of these countries has become global and investing or acquiring and merging the companies of Developed countries. There have been mainly two different kinds of waves of outward FDI from developing countries in 1960s – 1970s and thereafter. In the first wave companies of the developing countries mainly used to expend their business or invest their money only in other developing counties which was close to their home countries by doing efficiency and market seeking factors. In the second wave it was more strategic assets seeking used by both factor pull and push which was directed more towards developed countries to developing countries outside the region.
FDI started from Latin America in 1970s and new Transnational Corporations emerged from Argentina, Mexico and Chile. At this time Latin American Transnational corporations were spreading abroad on the basis of products to fulfill the need of the growing domestic market. And these countries primarily entered into the neighboring country. The second stage in the 1980s was dominated by Asian Transnational Corporation firstly spreading from Republic of Korea, Taiwan, Hong Kong, Singapore and then Malaysia, Thailand, China, India. Asian Transnational Corporation started to expend mostly in the fast growing market and in the developing countries which were less developed as compare to these host country as well. (Gammeltoft, P., 2006)
The BRICS countries ( Brazil, Russia, India, China and South Africa) has produced US $ 25 billion of outward foreign direct investment in 2004 which