Cost, Benefits and Effects of Inward Direct Investment Literature review

Cost, Benefits and Effects of Inward Direct Investment - Literature review Example According to Mondy (2013) Inward foreign direct investment is seen as a spillover superior technology hence extending to domestically owned firms. Foreign-owned firms are seen as the main cause for increasing wage levels in a host’s countries and also lead to higher productivity compared to local firms. Also, the impact of inward foreign direct investment is witnessed in promoting exports of host countries. There is a spillover of production skills which have transformed the economies of host countries (Mondy, 2013). Much of the impact is seen when knowledge of the world market is transferred from foreign-owned firms to domestically owned firms. Introduction FDI refers to Foreign Direct Investment; the investment can be into a business or production of the country by another country or an individual of another country. This investment can either be by expanding production of existing firms in the target country or by coming up with a new business in the target country.  In d eveloping countries, FDI and exports are the key elements that lead to the growth of this country’s economy. Countries which dominate the largest part of the world’s economy, for instance, United State of America are mainly foreign direct investors. Impacts of inward direct investment can either be long term or short term (Cainelli et al., 2004). Short term effects include an increase in the production of existing companies. On the other hand, long term effects include impairing local innovations as foreign investors tend to control the economy in the long run. Inward foreign direct investment It has been suggested Cainelli et al., (2004) inward foreign direct investment (IFDI) is said to encourage innovativeness on local firms, through investing in the existing local business. This will encourage the use of modern technology in productivity, leading to an increase in production by local firms. Cash flow in local firms will increase due to modern advanced technology. I ncrease in innovation levels by local firms is due to knowledge brought in by foreign investors to domestic investors. Creation of job opportunities is witnessed in local firms since there is an increase in the wage rate which makes domestic workers remain in a local firm. Outputs in local firms relatively increase due to the advancement in technical supply requirement leading to economic growth in target countries. It is also believed that investing in foreign companies and individual posses’ technological superiority comparative to those of host countries.

Global economy Midterm Review Questions Assignment

Global economy Midterm Review Questions - Assignment Example phenomenon in which the business environment in a country is deregulated so as to attract investors, causing low wages, poor environmental protection and poor working conditions. Issues such as minimum wage, political autonomy and workers unions are foregone for the sake of creating a favorable working environment. This is considered to e a problem because countries with poor working conditions and low environmental protection standards are deemed best for investment. Causes of race to the bottom include the pollution problem, poor government policy influenced by MNCs and government instabilities. First, other than free trade, Rivoli argues that there is need to develop strong political policies and reforms to address political barriers. For example, in her book, she argues that having a good political framework to protect the industries in America against the sweatshops that pay their workers 50 cents an hour is a better alternative than the free trade agreement. Secondly, she says that there is need to reform the famous trade agreements that limit or inhibit exports and import. In the US for instance, there are a number of such agreements that in fact limit the importation of t-shirts. If these factors are addressed, fairness in global competition will be introduced. Manufacturers will be able to work and export their products in a fair manner. The apparel industry best captures the history of globalization by showing how a single commodity moves through various processes and markets, thereby highlighting the interconnections between markets. The industry highlights the basic concepts of globalization such as political and cultural process. Arms trade globalization occurs both in the production and consumption. Most countries spend considerable amounts for procurement of arms. This is linked to lower spending by governments on the other areas. In the context of globalization, the arms industry is escalating conflicts and the proliferation of arms has