International Investment Group 05 FDI & TRADE The degree to which FDI and inward and outward foreign trade is interlinked in a network of increasingly internationalized production, may
Trang 1International Investment
Group 05
FDI & TRADE
The degree to which FDI and inward and outward foreign trade is interlinked in a network of increasingly internationalized production, may depend on
- the motivation for FDI,
- sectoral specifics,
- and the macroeconomic characteristics of the home and host economies
As countries ascend to higher levels of economic development, the linkages between FDI and trade generally become tighter
FDI generally occurs in tandem with greater international trade integration, which may reflect increasing vertical integration as well as the establishment of transnational distribution networks
Trang 2I Goods exports
In some emerging economies, FDI is considered as a possible vehicle for raising exports However, only certain economic sectors and certain motivations for FDI are likely to contribute
to near-term export growth In general, FDI in the context of trade linkages is likely to boost gross exports
Main benefits:
- Create and boost foreign trade flows integrate into the global economy
- Develop & strengthen international networks; increase importance of foreign subsidiaries
in MNEs’ strategies for distribution, sales and marketing
A developing country’s ability to attract FDI is influenced significantly by the entrant’s subsequent access to engage in importing and exporting activities
- FDI as a means to increase exports in the short and medium term depends on the context
- Longer-term impacts of FDI on host-country exports emanate from the generic benefits to the host economy The effects of FDI on competition, enterprise restructuring, human capital formation and technology transfer are instrumental in boosting export competitiveness
- Establishing export-processing zones (EPZs), have attracted increasing attention Ways
of attracting FDI
Export-processing zones (EPZs): serve as a way to create better framework conditions for
business, attract particularly export-oriented FDI and represent one of the more visible efforts
to attract FDI by many developing countries
Vietnam’s situation: to the
- Consist of 147 IPs and EPZs and 9 EZs widespread in 48 cities and provinces
nationwide, IPs, EPZs and EZs aim at creating a momentum to lift up industrial capability,
foster exportation, provide job, education and training opportunities, effectively use the
industrial land and minimize the pollution resulted from industrial waste disposals
- Be ideal destinations for manufacturing base
- Meet points of young, skilled and more cost-saving labor force compared to other neighboring countries
- Be the benignant destinations for projects of large-scale, high-tech as well as green and environmental friendliness
The ability of FDI to contribute to developing export capabilities depends on context Export processing zones may be a tool for closer integration into world trade
Trang 3II Goods imports
Direct impacts: an immediate effect coming from the actual investment
- It is limited to the imports of initial inputs of machinery and equipment (especially in
greenfield investment), or, where FDI is large compared with the size of the host economy
(FDI inflows of primary inputs (of equipment) contribute directly to imports so it’s an immediate effect)
While this suggests that the direct and immediate impact of inward FDI is an increase in
goods import, studies suggest that this effect tends to weaken over time
Longer-term effects: Whether inward FDI leaves the host country with a higher import level
depends on:
- Sectoral specifics
- Localization specifics
- Strategic specifics
Difficult to draw general conclusions
Recent studies do not support the assumption that lesser developed countries may use inward FDI as a substitute for imports Rather, FDI tends to lead to an increase in imports, which is often gradually reduced as local companies acquire the skills to serve as subcontractors to the entrant MNEs