FDI and Economic Growth Article Example | Topics and Well Written Essays - 2250 words

FDI and Economic Growth - Article ExampleThe UN defines control in this case as owning 10% or more of the mediocre shares or voting power of an incorporated firm or its equivalent for an unincorporated firm. In the years after the World War II spheric FDI was dominated by theUnited States, as much of the world recoered from the destruction wrought by the conflict. The U.S. accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to give out a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20% of global GDP. In the last few years, the emerging market countries such as China and India have become the most favoured destinations for FDI and investor confidence in these countries has soared. As per the FDI Confidence Index compiled byA.T. Kearney in 2006, China and India hold the first and second position respectively, whereas United States has slipped to the third position. position. Types of FDIGreenfield Investment direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nations promotional efforts because they create new production capacity and jobs, exchange technology and know-how, and butt lead to linkages to the global market trust. However, it often does this by crowding out topical anesthetic industry multinationals are able to produce goods more tattily (because of advanced technology and efficient processes) and uses up resources (labor, intermediate goods, etc). Another downside of greenfield investment is that profits from production do not feed back into the local economy, unless instead to the multinationals home economy. This is in contrast to local industries whose profits flow back into the domestic economy to promote growth. Mergers and Acquisitions transfers of existing as sets from local firms to foreign firms takes place the primary type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Unlike greenfield investment, acquisitions provide no long term benefits to the local economy-- counterbalance in most deals the owners of the local firm are paid in stock from the acquiring firm, meaning that the money from the sale could never reach the local economy. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Horizontal Foreign Direct Investment investment in the same industry abroad as a firm operates in at home. Vertical Foreign Direct Investment is of two kinds 1) b ackward steep FDI where an industry abroad provides inputs for a firms domestic production process 2) forward vertical FDI in which an industry abroad sells the outputs of a firms domestic production FDI can also be categorized based on the motive behind the investment from the perspective of the investing firmResource Seeking Investments which seek to presume factors of production that are more efficient than those obtainable in the home economy of the firm. In some cases, these resources may not be available in the home e