Foreign Direct Investment: Flows, Stocks, and Forms
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Foreign Direct Investment
Flows of FDI
The amount of FDI undertaken over a given time period.
From this year to this year, how much FDI flowed.
Outflows → flows of FDI OUT of a country.
How much Mexico invested in other countries.
Inflows → flows of FDI INTO a country.
How much other countries invested in Mexico.
Stocks of FDI
The total accumulated value of foreign-owned assets at a given time.
For a very specific given time.
The ones who received more FDI are developed nations because they have more open markets.
U.S is a target for FDI inflows:
- Large and wealthy domestic market
- Dynamic and stable economy
- Favorable political environment and openness to FDI
FDI:
US is the largest source since WWII.
US, UK, France, Germany, Japan & Netherlands account for 60% of all FDI outflows.
Forms of FDI:
Greenfield: Start from zero. Buy the land, build the factory, everything.
Acquisitions: When company A buys company B and becomes A+
Merger: A + B = AB
Joint-Venture: Strategic alliance
The easiest way to do IB is 1. exports.
2. Licensing
3. FDI > Exports
When transportation cost or trade barriers make exporting unattractive.
When a company wishes to maintain control over its technological know-how.
Host Country BENEFITS:
Resource-transfer effects → capital, tech, management resources.
Employment effects → brings jobs to the country
Effect on competition and economic growth → makes the country more competitive, lower prices, stimulates investment
BALANCE OF PAYMENTS:
capital account: tracks payments and receipts. benefits at the beginning from FDI inflows
current account: exports, imports
how much a country exports or imports