The paper "Various Methods that Countries Use to Promote Foreign Direct Investment " is a good example of finance and accounting coursework. Foreign direct investment (FDI) can be defined as a form of investment that involves a long-term interest as well as control by a resident organisation or individual in one country in a business that is resident in a country other than that of the foreign investor (United Nations Conference on Trade and Development (UNCTAD), 2012, p. 3; Wild & Wild, 2015, p. 440). In other words, FDI involves an individual or an organisation from one country making long-term investments in another country.
Through FDI, the investors are able to exert a significant level of influence on the management of a business that is located in the host country where the investment is made (UNCTAD, 2012, p. 3). As a result, FDI involves both benefits and demerits for the host country. Therefore, countries, through their governments, may promote or restrict FDI. Based on the background information above, this essay will discuss the various methods that countries use to promote FDI.
It will also discuss the ways in which countries restrict FDI. On the basis of the discussion, an opinion will be given on whether government intervention in FDI is justifiable or the neoliberal open market policy should be a nation’ s overarching principle. Various methods that countries use to promote FDI Governments promote and attract FDI because of the benefits that are associated with the concept. According to Donciu (2014, p. 17), FDI is an important component of the functioning of any country based on market principles as well as the economic development of countries.
In addition, Donciu argues that FDI plays an important role given that it helps in the strengthening of the receiving countries’ economies, especially those countries that are undergoing development and helps in their transition and integration into the world economy. Further, it is argued that FDI helps in the modernisation of national economies, especially those of the developing countries, as the host countries are able to have access to advanced technologies, employment, new equipment and knowhow, and to operate at new standards that enable them to achieve high growth (Almfraji & Almsafir, 2014, p.
209; Donciu 2014, p. 17; Dunning, Kim & Park, 2008, p. 173). Countries promote and attract FDI through measures such as liberalisation of trade, tax reductions or exemptions, subsidies and the provision of other incentives that induce foreign companies to operate in a certain way (Donciu 2014, p. 18; OECD, 2010, p. 104). Donciu (2014. p. 19) has outlined a number of the specific measures that governments implement to attract FDI. The first measure is the use of policies that are aimed at making it easier for foreign firms to do business in or with the host country.
The second measure is the use of policies that focus on improving import substitution. The third measure is the provision of commercial facilities and incentives to attract foreign firms. Trade liberalisation Policies that are aimed at making it easier for foreign firms to do business in or with the host country can be related to trade liberalisation. Trade liberalisation means the removal or reduction of regulatory barriers that firms have to go through in order to access the market in a given country (Hodge, 2002, p.
222). Thus, in regard to international business, trade liberalisation involves making a country’ s market more open to trade or investment by foreign firms. According to OECD (2010, p. 104), there is a strong correlation between the liberalisation of trade and FDI. Specifically, the OECD notes that one extensive review of literature established that there is a likelihood of a positive relationship between a nation’ s openness to investment and trade and FDI. The OECD also argues that a trade regime that is characterised with market openness adds to attracting FDI.
This is because an economy that is liberal and open provides an environment that is conducive to investment and growth. A liberal and open market environment also create conditions that are appropriate for the harmonisation of a country’ s regulations and standards with international procedures and standards. The standardisation and harmonization of laws, regulations and standards regarding various operations help in making a country’ s economy more competitive and acts as a means of enhancing trade (OECD, 2010, p. 104). An open and liberal economy is also associated with positive export promotion policies, which can assist nations in diversifying their exports by promoting trade in goods where there is a comparative advantage (OECD, 2010, p.
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