Essays on The Concept of Foreign Direct Investment, Worldwide Patterns of FDI Coursework

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The paper "The Concept of Foreign Direct Investment, Worldwide Patterns of FDI" is a great example of finance and accounting coursework.   The concept of Foreign Direct Investment (FDI) is today considered a basic dictum in the contemporary global economical environment and a manifestation of internalization. With tremendous outburst in communication technology and transpiration along with trade liberalization and revolution in investment regime, economies among nations are undoubtedly becoming more integrated as financial capital, cross border flow of trade and investment continue to grow (Desai et al, 2004, p. 2733). The focus of internationalization of business has shifted from just trade to factors of production.

Manufacturing, assembling and sourcing outside home countries is rapidly gaining momentum today that before. International production via foreign operations is set to exceed by far the exportation of goods between nations. FDI is becoming increasingly important and receiving much attention from governments and Multinational Corporations. At the same time, the world had witnessed significant changes in the trends and patterns in the flow of FDI. The motives of Trans-National Corporations have moved from the traditional market seeking approach to a more strategic and efficient asset seeking approach (Markusen, 2002, p. 77).

Production within the host country is no longer strictly related to market size or the resource base of the economy. The principle driving force behind such production is the comparative cost factor. Forms of international investment have remarkably changed from wholly-owned to non-equity or low equity forms of participation and from Greenfield investment to acquisitions and mergers. Along with these waves, the hegemony of developed countries as recipients and sources of FDI is slowly eroding and being replaced by their developed counterparts especially East and South-East Asia.

The purpose of this paper is to trace the trajectory behind the prevailing patterns and trends in global FDI. Worldwide patterns of FDI The overall trend of FDI Goldstein and Barton (2010, p. 604) point out that FDI has experienced tremendous growth over the past decades more remarkably than international trade. FDI flow hit its peak in 1996 with a tremendous increase in inflow by about 10% to around $ 349 billion while the outflow rose to $347 billion which was about 2% increment.

FDI inflow grew by 10.3% which exceeded the growth in nominal values of international trade and world GDP which expanded only by about 4.5% and 6.6% respectively. FDI stock reached about $3.2 trillion compared to the previous $2 trillion in 1993 and $1 trillion in 1987. Assets and sales of TNCs are rapidly growing than gross fixed capital formation, world GDP and exports. Today, about 44,000 TNCs with almost 280,000 foreign affiliates have active operations through a wide variety of investment channels as well as equity and non-equity link-ups. The present trend in FDI suggests that the world is in the midst of an FDI revolution and transformation following a decline in FDI flow that now seems to be fully recovered as in the previous years (Borga and mataloni, 2001, p. 256). The first FDI boom to have ever been experienced in the world occurred from 1979 to 1981.

The boom which occurred after the second oil crisis during the end years of the 1970s was led by major oil-producing countries; it was however short-lived. The largest recipients of FDI, at that time, were the United States followed by Saudi Arabia; major oil producers.

FDI outflow boom was led by the United Kingdom and the Netherlands which were home to major petroleum TNCs. The second FDI boom was experienced in 1986-1990. This period experienced the emergence of many countries as recipients and sources of FDI, most notably Japan which became the world largest outward investor. Flows in investment were, to a large extent, influenced by increased protectionist pressures which were accelerated by the rapid economic growth of FDI liberalization and adoption and development of telecommunication and information technologies (Nicoletti et al, 2003, p. 3).

The 1986-1990 FDI boom actually a phenomenon of the developed countries. The prevailing boom began in 1995 and is majorly attributed to China’ s entrance as the major recipient of FDI and the emergence of Latin American countries on the inflow side and Germany, France and some developing countries on the outflow side.

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