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FOREIGN DIRECT INVESTMENT

Pragmatic Nationalism

• Having nor a radical neither a free trade market.
• FDI has both benefits and disadvantages to a country.
• Some Pragmatic nationalist are thinking in terms of resources taken out by MNE in the repatriation resulted from FDI.
• Japan, Korea, Latin American Countries are the Examples.
• But recent years have seen a major increase in FDI.

Growth and Employment Effects:

In contrast to the balance-of-payments effects, the effects of FDI on economic growth and employment should not be a zero-sum game because MNEs may use resources that were either underemployed or unemployed. The argument that both home and host countries can gain from FDI rests on two assumptions: (i) resources are not fully employed and (ii) capital and technology cannot be easily transferred from one activity to another.

• Home Country Losses: As manufacturers seek lower-cost foreign production sites, home countries claim that FDI outflows create jobs abroad at the expense of jobs in the home country.
• Host Country Gains: Host countries gain through the transfer of capital, technology, and managerial expertise, as well as the creation of new jobs.
• Host Country Losses: Critics argue that FDI inflows often displace domestic investment and drive up local labor costs. They claim that MNEs have access to lower-cost funds than local competitors do and that MNEs can spend more on promotion activities. In addition, while it is true that MNEs often source inputs locally, critics claim that they also destroy local entrepreneurship. Further, as MNEs gain valuable knowledge in their foreign operations that can be shared across their entire organizations, critics fear that local firms subsequently suffer a
  competitive disadvantage.



Read more: MGT520 - International Business - Lecture Handout 35