Foreign Direct Investment (FDI) Lecture Notes

These flashcards cover key concepts from the lecture on Foreign Direct Investment (FDI), including definitions and theories related to global economic practices.

Foreign Direct Investment (FDI)

Investment made by a firm or individual in one country in business interests in another country, in the form of establishing business operations or acquiring business assets.

FDI Flow

The amount of foreign direct investment made over a specified period.

FDI Stock

The total accumulated value of foreign-owned assets at a given time.

Outflows

The flow of foreign direct investment out of a country.

Inflows

The flow of foreign direct investment into a country.

Geopolitical Distance

The level of similarity between countries based on political, economic, and cultural factors impacting international interactions.

Greenfield Investment

Establishment of a new operation in a foreign country from the ground up.

Acquisition

Purchasing or merging with an existing company in a foreign country.

Liability of Foreignness (LoF)

The additional costs and disadvantages that firms face when operating outside their home country compared to local firms.

Value-to-Weight Ratio

The relative value of a product compared to its physical weight, affecting transportation costs and production location decisions.

Internalization Theory

Theory emphasizing the benefits of keeping activities within the firm rather than outsourcing, to protect knowledge and maintain quality control.

Ownership Advantages

Firm-specific assets that provide a multinational enterprise (MNE) a competitive edge over local firms.

Location Advantages

Country-specific factors that make a foreign location attractive for investment, such as natural resources or market size.

Internalization Advantages

Benefits derived from controlling foreign operations to protect intellectual property and ensure operational quality.

Knickerbocker Theory

The theory that FDI behavior is influenced by competition among firms in oligopolistic industries.

Balance of Payments (BOP)

A systematic record of all economic transactions between residents of a country and the rest of the world over a specific period.

Host Country Benefits of FDI

Benefits that a foreign country receives from foreign direct investment including capital, technology, jobs, and increased competition.

Home Country Benefits of FDI

Advantages that the home country gains from its firms investing abroad, such as repatriated earnings and new skills gained.

Adverse Effects on Competition

Negative impacts on local competition caused by the dominance of foreign multinational enterprises (MNEs) in a host market.

Advantages of FDI

Benefits associated with FDI like avoiding trade barriers, retaining control over resources, and meeting local market demands.

Pragmatic Nationalism

The viewpoint that FDI has both costs and benefits, advocating for policies that maximize benefits while minimizing costs.

Strategic Imitation

Behavior in which firms in an oligopolistic market imitate each other's investment decisions to maintain competitive position.

Eclectic Paradigm

A theory explaining FDI by examining the interplay of ownership, location, and internalization advantages.

Emerging Markets

Economies that are transitioning from developing to developed status and are characterized by rapid growth and industrialization.

Investment Corridors

Major routes through which foreign direct investment flows, often characterized by high investment activity between specific countries.

Electric Vehicle Investment

Foreign direct investment focused on the development and production of electric vehicles and their components.