Foreign Direct investments in the World Eoconomy - Introduction

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Foreign Direct investments in the World Eoconomy
- Introduction

• Ing. Tomáš Dudáš, PhD.

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Contact information

• Email dudas_at_euba.sk
• Office hours - (D4.16)
• Monday 9.00-11.00
• Wednesday 11.00-13.00

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Literature and Course Requirements

• Literature
• World Investment Report series free download at
  www.unctad.org
• Assorted papers and articles
•  
• Course requirements
• Active participation (max. 3 absentia)
• Slovak students written essay on agreed topics
• Foreign students written test at the end of the
  term

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Course layout

• Foreign direct Investments introduction
• Introduction of the course
• The place of FDI in the world economy
•  
• Review of the major theories of FDI
• The main theories on the macroeconomic level
• The main theories on microeconomic level
• Development theories of FDI
• John Dunnings eclectic theory
•  
• The latest trends in global FDI flows
• The global FDI inflows and outflows
• Regional trends Asia, Africa, Latin America and
  the developed countries

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Course layout

• FDI in Central and Eastern Europe with emphasis
  on Slovakia
• FDI inflows into CEE countries from 1990 to 2007
• FDI inflows into Slovakia from 1993 to 2007
•  
• The possible impacts of FDI inflows on the
  economy of the host country
• The evaluation of the possible positive and
  negative impacts of FDI inflows
• The main attributes of the investment
  attractiveness of host countries
• Investment climate
• Macroeconomic attributes
• Investment promotion

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Course layout

• Investment promotion as a tool of improving the
  investment attractiveness
• Tool of investment promotion
• IPAs Investment promotion agencies
• The role of investment promotion in Slovakia
• Guest Speaker from SARIO Slovak investment
  promotion agency 

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Course layout

• Case study FDI in the Chinese economy
• The role of FDI in Chinas economic success
•  
• Case study automotive FDI in the countries of
  Central and Eastern Europe
• The current state of global automotive industry
• Automotive industry in Central and Eastern Europe
•  
• Review of the course, closing remarks

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Why should we analyze FDI?
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Introduction

• International Economic Relations
• International Movement of Goods
• International Movement of Labour
• International Movement of Capital
• Any flow of capital that crosses the national
  borders

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Basic forms of international capital movement

• Portfolio investment
• Short term, profit oriented
• Foreign direct investment (FDI)
• Foreign direct investment (FDI) is defined as an
  investment involving a long-term relationship and
  reflecting a lasting interest and control by a
  resident entity in one economy (foreign direct
  investor or parent enterprise) in an enterprise
  resident in an economy other than that of the
  foreign direct investor (FDI enterprise or
  affiliate enterprise or foreign affiliate)
  UNCTAD definition

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Forms of FDI

• Mergers and Acquisitions (MA)
• The investing company buys a share in an existing
  company abroad
• Greenfield investment
• The investing company establishes a new
  (production, sales etc.) affiliate company abroad

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Sources of FDI

• Equity capital - is the foreign direct investors
  purchase of shares of an enterprise in a country
  other than its own.
• Reinvested earnings - comprise the direct
  investors share (in proportion to direct equity
  participation) of earnings not distributed as
  dividends by affiliates, or earnings not remitted
  to the direct investor. Such retained profits by
  affiliates are reinvested.

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Sources of FDI

• Intra-company loans - or intra-company debt
  transactions refer to short- or long-term
  borrowing and lending of funds between direct
  investors (parent enterprises) and affiliate
  enterprises

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Global FDI flows in the 1970s

• FDI started to play a stronger role in the world
  economy after WW2 with the emergence of
  transnational corporations
• New impulse the oil crisis in the 70s
• Structural changes in the Japanese economy
• Labor and resource intensive industries were
  gradually moved to southeast Asia (Korea, Taiwan
  and other countries)
• Problems protectionism and problems with the
  freedom of capital movement

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Global FDI flows from the 1970s until the 2000s
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Global FDI flows in the 1980s

• 80s emergence of global corporations
• New impulse for FDI
• Automotive industry is a good example
• Active Japanese automotive corporations
• Goal to overcome American trade barriers
• 1983-1989 the average annual growth rate of FDI
  outflows was 29 compared with the average 9,4
  of the global exports
• Developed countries received 81 of the global
  FDI inflows

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Global FDI flows in the 1990s

• Fall of the Berlin Wall and the demise of
  socialism gave a new impulse to the world economy
  new markets and possibilities
• Central and Eastern Europe, India, China
• Global FDI flows rose 208 billion USD in 1990 to
  1 390 billion USD in 2000
• Favorable conditions in the world economy
• High growth in the USA and in western Europe
• Rise of corporate profits high number of
  mergers and acquisitions

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Global FDI flows in the 1990s

• Key concepts outsourcing and MAs
• The growth of FDI flows was especially strong in
  the second half of the 1990s due to record level
  of MAs
• The role of developed countries was still strong
  (71 of the global inflows), but the share of
  developing countries was rising
• Southeast Asia and Latin America were the most
  interesting regions
• China new leader in greenfield FDI inflows

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Sources of FDI data

• Global FDI data http//stats.unctad.org/fdi/
• European data Eurostat
• Slovak data www.nbs.sk (Menový prehlad)