Ownership Advantage

Ownership advantage can be described as some privilege and benefits that a firm has other its competitors. It takes place when a firm has better technology and knowhow (managerial) which enable it to compete on the foreign market though there is the existence of transaction costs.

Location advantage is the benefit a firm have when it locates in a particular area. Location advantage can include good infrastructure, possibility of large markets in the host country, government policies, and cultural diversity.

Internalisation advantages suggest that firm would engage in foreign production instead of going through licensing or franchising if the internalisation advantage gain from cross border market is bigger. Thus the international market would

It can be found that over the years FDI has becomed increasingly important and has a growing role.

One main argument for FDI is that it is resilient in times of crises. It was contrasted to other form of investment such as portfolio investment which tend to fall during this period. For instance, during the financial crises in the East Asian in the 1997-8, FDI has remained quite constant as opposed to other forms of capital flows such as portfolio equity. Other examples where FDI was demonstrated to be stable during crises were the Mexican Crisis and the Latin American Crisis.

Also, FDI allow the host country to gain from technological knowhow in the form of advanced technologies, new varieties of capital input that through trade and financial investment probably it would not have been achieved

FDI provides the possibility of job creation but also workers can acquire high skill and expertise through implicit and explicit training that the foreign firms provide them. Thus this create increasing human capital in the recipient country.

Moreover, the profit which are created from the FDI through the corporate tax is a source of revenue for the recipient

Spillovers come from these knowledge effect. The effect can be internal as well as external. Spillover effects are often related to the external effects. FDI Spillover is refered as the extent at which productivity increased for the enterprises in the home country as a result of foreign firms occupancy in the home country. There is different form of spillovers, for instance there can be spillovers in terms of technology, management skills, or working methods. These spillovers help to enhance