Question
In: Economics
Over the past 35 years, there has been a marked increase in both the flow and...
Over the past 35 years, there has been a marked increase in both the flow and stock of FDI in the world economy. Discuss why FDI has grown more rapidly than world trade and world output. Site examples when possible.
Solutions
Expert Solution
The foreign direct investment (FDI) means that the firms invest directly in new facilities to produce or market in a foreign country. FDI has developed more quickly than world trade and world output for a few reasons. Initially, in spite of the general decrease in trade hindrances in recent years, firms still dread protectionist pressures. Officials see FDI as a method for going around future trade boundaries. Second, a great part of the expansion in FDI has been driven by the political and economic changes that have been happening in a considerable lot of the world's developing countries. The general move toward majority rule political foundations and free-market economies has energized FDI. Crosswise over quite a bit of Asia, eastern Europe, and Latin America, economic growth, economic deregulation, privatization programs that are available to outside speculators, and expulsion of numerous limitations on FDI have made these nations increasingly alluring to remote multinationals.
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