Multinational Corporations

Effects of Outward Foreign Direct Investment

By: Rodney Bohannon

E-mail: bohannon@semo.net


The Effects of Foreign Direct Investment on the Home Country


Foreign Direct Investment (FDI) could be defined as a minimum 10 percent investment of equity or capital by a firm based in one country (home economy) to an enterprise resident in another country (the host economy). The new entity then becomes a multinational enterprise (MNE). Many companies prefer FDI to exporting to gain access to new or larger markets, gain cost advantages in the host country and in response to trade barriers. There has been significant global growth of FDI since 1982. Although the United States is the largest home and host country of FDI, outflows have exceeded inflows. Japan in contrast, receives much less inflows than outflows. Cultural and financial management variations between countries do seem to influence the direction of FDI flow. Strategic governmental trade policies in recent years have sup...