Economics Dictionary of ArgumentsHome
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| Foreign Direct Investment: Foreign Direct Investment (FDI) is an investment made by a company or individual in one country into a business or enterprise in another country. It involves acquiring a lasting interest and a significant degree of influence over the foreign entity, often implying an ownership stake of 10% or more. FDI includes establishing new facilities, mergers, or acquisitions, aiming for long-term growth and control. See also Investments, International trade, Multinational corporations._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Robert C. Feenstra on Foreign Direct Investment - Dictionary of Arguments
Feenstra I 11-1 Foreign Direct Investment/Feenstra: (…) a good deal of trade occurs internally within firms located across countries. For the U.S., for example, about one-third of exports and over 40% of imports consist of intra-firm trade between a U.S. or foreign firm and their affiliates (…). When a firm operates in several countries it is a multinational enterprise, and the investment made in the foreign country is referred to as foreign direct investment (FDI).* >Multinational corporations, >Knowledge spillover. Feenstra I 11-3 Tariffs: [The] phenomenon of “tariff-jumping” FDI is a typical occurrence in import-substitution regimes, but is not restricted to the developing countries: many industrialized countries have used tariffs or quotas to induce the entry of foreign firms. This policy has some economic rationale, since the entry of foreign firms in simple models leads to a welfare gain due to increased domestic wages. The link between foreign investment and wages is therefore an important topic for empirical research. In Mundell’s(1) analysis, domestic wages are not affected by the foreign investment (due to “factor price insensitivity” in the HO [Heckscher-Ohlin] model), but it is still the case that the deadweight loss of the tariff is reduced due to the entry of foreign firms. * We might define FDI as acquiring sufficient assets in a foreign firm to exercise some managerial control, though acquiring 10% or more of the assets of a foreign enterprise is the definition commonly used in practice. 1. Mundell, Robert A., 1957, “International Trade and Factor Mobility,” American Economic Review, 47, 321-335._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Feenstra I Robert C. Feenstra Advanced International Trade University of California, Davis and National Bureau of Economic Research 2002 |
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