Question

LOBED IFN Finat Kha factrs impact Jushfy your ansiuer fRe foceign cliact inechnent of uNcs? on Discuss tke chan of VnD valus against usD undar impact of. us- China Trade War ,elase discuss. impact of us- China Trade War on FDr 5 CInflows Discuss econamic exposuse. of us-based unCs. e usD appecladier aqainst Yan Euro, Yn

Answer 1

1. The following factors impact on the foreign direct investment of MNC's: Factors supporting foreign direct investment of mnc's ( i.e.favorable factors to invest )

• Lower environmental standards in the host country and the consequent relative savings in costs.
• Stable political environment and overall favourable investment climate in the host country.
• Shared common language or common boundaries and possible saving in time and transport costs because of geographical proximity.
• Higher degree of openness to foreign capital by the recipient country and the prevalence of preferential investment system such as special economic zones to encourage direct foreign investments.
• The existence of low relative wages in the host country because of relative labour abundance coupled with shortage and high cost of labour in capital exporting countries, especially when the production process is labour intensive.
• Tax differentials and tax policies of the host country which support direct investment. However, a low tax burden cannot compensate for a generally fragile and unattractive FDI environment.
• Desire to secure access to minerals or raw material deposits located elsewhere and earn profit through processing them to finished form. (example - FDI in petroleum)
• Desire to reap economies of large scale operation arising from technological growth.
• Desire to procure a promising foreign firm to avoid future competition and the possible loss of export markets.

Summary :

Economic determinants	policy framework
Market seeking FDI:	1. Economic, political and social stability
1. Market size and per capita income	2. Rule regarding entry and operations
2. Market growth	3. Policies on functioning and structure of markets e.g. regarding competition, mergers.
3. Access to regional and global markets	4. Tax policies and international agreements on FDI privatization policy
4. Country specific consumer preferences
	Business facilitation
Resource or asset seeking FDI:	1. Investment promotion (including image building and investment generating activities)
1.Raw materials	2. Investment incentives
2. Low cost unskilled labour	3. Hassle costs ( related to corruption and administrative efficiency)
3. Availability of skilled labour	4. After investment services
Efficiency seeking FDI:
1.Costs of above physical and human resources and assets
2. Other inputs costs e.g., intermediate products transport costs

Factors discouraging foreign direct investment of mnc's (i.e. unfavorable factors to invest):

• Host country discouraging inflow of foreign direct investment are infrastructure lags.
• High rate of inflation in host country.
• Poor literacy and low labour skills.
• Rigidity in the labour market.
• bureaucracy and corruption.
• Unfavorable tax regime and cumbersome legal formalities and delays.
• Small size of market and lack of potential for its growth.
• Political instability.
• Exchange rate volatility.
• Language barriers.
• High rate of industrial disputes.
• Lack of security to life and property.
• Lack of facilities for immigration and employment of foreign technical and administrative personnel.
• Absence of well defined property rights.