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International Economics

      Lecture 10
     More on FDI

    pages 259-273
Benefits and Costs
Benefits and Costs
Host Country - Receiving
Home Country - Source
Host Country
   Benefits
Host Country
         Benefits
Resource-Transfer Effects
    Employment Effects
Balance-of-Payment Effects
Competition and Growth
Resource-Transfer
     Effects
Resource-Transfer
     Effects
     Capital
   Technology
   Management
Employment
  Effects
Employment
  Effects
     Direct
    Indirect
 Higher wages
More productive
Balance-of-Payment
      Effects
Balance-of-Payment
        Effects
      Current account
Net of payments and receipts
  FDI substitutes imports
     China cell phones
Competition and
 Growth Effects
Competition and
    Growth Effects
       More choices
Higher quality & lower costs
        Cell phones
Host Country
    Costs
Host Country
         Costs
Competition & Monopoly
  Balance-of-Payments
     Independence
Competition and
  Monopoly
Competition and
  Monopoly
Harm local companies
  then monopolize

      Mergers
Balance-of-Payment
      Effects
Balance-of-Payment
        Effects
Invest in then take profits out
  Import parts to assemble
 Local content requirements
Independence
Independence
  National Sovereignty and
        Autonomy

Competition prevents ransom
Home Country
   Benefits
Home Country
           Benefits
   Inflow of foreign earnings
     Demand for exports
Intermediate and compliments
       Learn new skills
Home Country
    Costs
Home Country
       Costs
Balance-of-Payments
    Capital Out
Low cost production
No longer an export
    Employment
Government Policy
  Instruments
Government Policy
   Instruments
      Home Country
        Encourage
Insurance, loans, tax credits
     Political pressure
       Restrictions
Government Policy
  Instruments
Government Policy
    Instruments
      Host Country
        Encourage
Insurance, loans, tax credits
       Restrictions
Ownership and Performance
WTO
1995
WTO
     1995
      Services
Telecommunications
      Finance
Transportation      Low
                            Export
 Costs and Tariffs?
    High
Knowledge amenable    No
                             FDI
   to licensing
     Yes
 Tight control over   Yes
                             FDI
     operation
     No
Protected knowledge   No
                             FDI
   with contract
     Yes
      License

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Benefits and Costs of FDI for Host and Home Countries

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