FDI is about much more than financial flows, however. Generally speaking, FDI creates jobs, more jobs than those that are eventually lost due to the shrinking or closure of local firms that cannot compete with the newly arrived firms from abroad.
It is not just the quantity of these jobs but also, frequently, their quality that prompts governments to seek to attract FDI. The relative complexity of the tasks or processes involved in their operations means that multinational corporations MNCs employ a larger share of skilled workers.
They also increase demand for related services that often need relatively higher-skilled workers such as transportation services, for example. In some cases, FDI can even create jobs in places where unemployment rates are high.
Furthermore, MNCs pay wages that are 40 percent higher, on average, than those of local firms. FDI can also have negative effects on labor markets. For example, an MNC sets up operations in a given country and starts producing goods or services more efficiently than local companies. However, FDI can increase demand for local inputs and lead to the growth of industrial clusters where synergies emerge between MNCs and local firms, creating jobs, as is the case in the Puebla—Tlaxcala automotive cluster in Mexico, which grew around Volkswagen.
Through this trade in inputs, even within production clusters, countries can develop local industries or firms that specialize in producing certain intermediate goods without the need for the country to be competitive along the entire length of the production chain for the final product.
Local companies from these countries can thus participate in global or regional value chains link in Spanish. This increases the productivity of these companies, which can offer relatively better labor conditions than the average local firm does. Consequently, countries that receive FDI also benefit because the productivity of MNCs is estimated to be between 15 percent and 60 percent higher than that of local firms due to demonstration effects and labor mobility, and also because of increases in the quantity and quality of intermediate inputs that circulate in the local economy.
In sum, FDI has the potential to create win-win situations for both the investing company and the country receiving the investment. Unless national governments provide the incentives companies get abroad, they will continue to invest. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Your Name required.
Your Email required. Davies, Naughton, Waddell, and I explore this by explicitly modeling spatial interdependence in empirical estimation of U. FDI patterns. However, our finding that the coefficients on the standard control variables in FDI studies are hardly affected by including these spatial considerations is relatively good news for previous work using these empirical specifications.
There has been substantial progress in the literature in the past couple of decades, but it is complicated enough that, in many ways, we are still in the process of uncovering what we don't know. I am excited to work on filling more gaps in our understanding in my future research efforts. Bernard, J. Jensen, and P. For example, see J. Desai, C. Foley, and J. For example, see T. Blonigen and R. Hartigan, ed. Blonigen, "Evolving Discretionary Practices of U.
Blonigen and S. Blonigen and J. Blonigen, K. Tomlin, and W. A related issue is how FDI may affect trade protection policies that is, reverse causality , which I address with co-authors in B.
Trade Protection and Promotion Policies, R. Feenstra, ed. Blonigen and D. Blonigen, C. Ellis, and D. Anderson and E. Carr, J. Markusen, and K. Blonigen, R. Davies, and K. Blonigen and M. Moran, E. Graham, and M. Blomstrom, eds. Davies, G. Waddell, and H. NBER periodicals and newsletters are not copyrighted and may be reproduced freely with appropriate attribution.
More in this issue. A good regulatory framework is an enabler and good investment promotion, which includes investment facilities and incentives, is the icing on the cake. At Investment Monitor, we have put together the following list of what are the most important drivers MNCs should focus on when selecting their next FDI destination.
Key drivers of FDI FDI drivers are not univocal and will to a degree vary according to the type of MNC and, in particular, to the type of operations they are trying to set up. Drivers differ between companies — what sector they are in and where they are looking to invest.
For example, a US-based company looking to establish an automotive manufacturing operation in Asia will have a different set of priorities or drivers to a European financial services company looking to set up an office in North America.
However, the selection of a new FDI destination is a sensitive process for MNCs as it generally involves significant capital expenditure and commitment of senior staff time and other resources. Most companies pick a location based on a combination of cost and quality factors. Cost Cost is an essential component of the FDI site selection decision-making process.
Normally driven by demand, there are many different types of costs involved in setting up an FDI operation. To begin with, labour cost. MNCs often invest abroad to outsource labour-intensive production to countries with lower wages. Property cost is another type of cost that MNCs need to look at when they are considering establishing a presence in a new market. Companies typically weigh the costs against the quality offered when assessing a location. If a country has an enabling FDI regulatory regime, it is obviously a preferable and accessible destination compared with one that has higher barriers to entry or, for instance, an FDI blacklist for certain sectors that it deems strategic and intends to protect from foreign ownership and influence.
From a tax perspective, large multinationals have often sought to invest in countries that apply lower corporate tax rates. Ireland , for instance, has been successful in attracting Google and Microsoft for this reason.
0コメント