Analysis Of Foreign Direct InvesmentEssay Preview: Analysis Of Foreign Direct InvesmentReport this essayAbstractThis paper discusses on two main topics: firstly, the impact of Foreign Direct Investment (FDI) on domestically-owned firmsĂ²Ăâ⢠technology development and the effect of FDI on technology development in domestically owned firms is through the impact on competition, secondly, the interaction between the different modes of market access commitments in services (cross-border and establishment) market structure, and regulation.
IntroductionThe first article which is assessed in this document discusses about the impact of Foreign Direct Investments on domestically-owned firmsĂ²Ăâ⢠technology development and the competition among those industries. In order to examine the afore-said statement Chinese manufacturing sector and firmĂ²Ăââ˘s R&D were selected. The analysis was conducted on a large data set including all Chinese large and medium sized firms over the period 1998-2004.
In the second article, it is discussed the interaction between the different modes of market access commitments in services (cross-border and establishment) market structure, and regulation. In doing so the focus was on the impact of improved domestic market access for a Foreign Service provider on a domestic service market. Moreover it also talks about how the domestic industry was able to act as a cartel due to imperfect completion and domestic regulation.
AssessmentThe study on Chinese Foreign Direct Investment (FDI) starts by examining the impact of FDI on price cost margins in Chinese 21 firms. FDI can be an important channel for developing countriesĂ²Ăâ⢠ability to get access to new technology. The impact of FDI on domestically-owned firmsĂ²Ăâ⢠technology development is less examined but it is frequently argued that technology externalities or demonstration effect could have a positive impact. Further the impact on competition, when FDI and technology development in domestically owned firms is another aspect that needs to be examined. FDI might affect the degree of competition, which in turn might affect efforts to upgrade technology in domestic firms. Here the author is trying to find out how FDI is expected to affect competition or how competition is expected to affect technology development. In doing so, the author strongly recommends the need of empirical studies but also stating limitation of the existing literature.
Continuing the results of the study, there is a strong and robust negative effect of FDI on firms price cost margins which suggest that FDI do increase the level of competition in Chinese manufacturing, as per the author. Further it states that robust positive effects on price cost margins from high efficiency (TFP) and from state ownership.
When examining the determinants of R&D with a special focus on the role of competition, it is concluded that a high degree of persistence in R&D and little evidence of any, negative or positive, effect of competition on R&D. Moreover, there is no indication of a spillover effect of FDI on R&D in domestic firms. Finally, firms with high R&D intensities tend to have a relatively skilled labor force, are relatively small in size, and State Owned Enterprises are more R&D intensive than are domestic and foreign private firms.
On the other hand, we look at the effects of market-access concessions for domestic and foreign firms and for domestic consumers. It also argued that the relative benefits of cross-border and establishment-related market-access concessions hinge critically on underlying issues of regulation and market structure. In particular, the interests of the domestic and foreign industry will depend, in part, on the impact that trade has on the market power of domestic firms.
Based on the analysis done, the author has summarized the results in three groupings: rather obvious, somewhat less obvious, and even less obvious. The last set of results constitutes the substantive contribution of the paper. On the rather obvious front, given an imperfectly competitive industry (alternatively perfect collusion), less market access (i.e., greater restrictions) implies the following: the foreign service provider will have a smaller market share and profits; domestic service providers will have higher profitability; and home firms face less competition from abroad resulting in a higher home market price. It also shows the effect of a regulatory environment that tolerates collusion among a small number of domestic firms, less competition has the following implications: the foreign firm will have higher profits the less competitive the domestic industry; profits of the home industry
The authors have taken particular note of the recent research of the same group. They have shown the following differences: the average average profitability of the Chinese industry is slightly above average, a higher average profit in domestic markets, and the average profit rate in international markets is lower.
The authors have also presented data to demonstrate that competition between different domestic and foreign markets has much less meaning than that seen in any comparable country outside China.
The authors also have reported on an increase in the number of domestic firms and, on several occasions, higher home prices, which have led to lower profits and a higher average profitability in the international market, such as the European market.
The authors have used three different data sets to obtain, through the last 20 years, an annual mean gross domestic product (GDP) of 10.1 percent that can be calculated from a variety of methods. The current annual GDP is based on an average estimate of one and a half years. The current figure is the same when applied to the two latest years of the GDP and the current year of the GPP (1.3â3.5 percent). However, the GDP is only calculated for the very best-performing domestic companies as opposed to the best-performing international enterprises, and the average annual gross gross price is calculated from the number of items in their products (i.e., average cost per item sold) according to each of the previous figures. The authors did not note that they used a variable to determine average GDP or that they applied constant GDP to their overall economy in order to compare apples to apples. Rather, they only used standard deviation to calculate average GDP.
The results for the three data sets are shown in Figure 4. In this figure, there is no change in the average number of foreign firms in the country than there is in the country as a whole (but there is a small increase relative to average, which is an advantage in that it is less volatile, particularly if the total number of firms is only 10 in terms of percentage growth).
Figure 4. Average gross domestic product (GDP) and the growth and decline of the European economy, 2009â2011
As the data in Figure 5 show, the percentage of the GDP is declining by 7.7 percentage points (or 0 percent per year) year on year. In contrast, the number of foreign firms growing by only 5.7 percentage points (or 0.2 percent per year) in the region has actually grown by 2.76 percentage points (or 4.) In other words, the number of foreign firms is increasing at the same pace as the number of non-Western enterprises that grow. This is the largest single positive trend, in that the percentage of the GDP growth rate increasing in the region has actually grown at a slower rate, compared with the general increase that has been observed in the rest of the continent.
Figure 5. Average gross domestic product (GDP) and the growth and decline of the European economy, 2008â2011
To illustrate, in this graph the average number of firms is shown in Figure 6. This is the first annual rise, followed by an average decline in average gross domestic product, with the highest decrease occurring in the regions that followed. For an average global GDP of 3.8 percent, the average growth rate is much higher for the European regions than compared to the rest of the continent.
The GDP and overall price of goods have remained fairly constant over these past 20 years, at around 6.3 percent per year. In contrast, for the three data sets, the GDP has dropped by 16.8 percent in the four