FDI and the Ecletic Paradigm The increasing globalization has stimulated the appetite of Multi-National Corporation (MNC) to invest abroad while it has also forced the host country to create a more favorable environment for Foreign Direct Investment (FDI) (Chittle, 1999). International trade (exporting and licensing) and FDI (either greenfield investment or Merger and Acquisition (M&A) with an existing firm in the host country) are two important phenomena of globalization for MNC (Buckley, 2015). According to Liu et al. (2016), cross-border M&A is a significant component of FDI, being roughly about one-third of the total FDI flows. The main analytical framework to explain the determinants of FDI is the Eclectic Paradigm or OLI, which attempted
The use of derivative instruments in corporate risk management has grown rapidly in recent years, caused partly by financial deregulation and partly by the success of the financial industry in designing a great variety of OTC and exchange-traded contracts. Derivatives enable their users to separate, value and transfer market risks. The use of derivatives, enhances the possibilities for active corporate risk management, which is likely to have an impact on profitability of the firm. What is Hedging? Hedging is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities.
This is attributed to the optimal allocation of the resources with the saving price that reflects much its scarcity and the unification of the domestic financial system. It has also led to reduced unemployment as the price of the capital increases, and there is substitution of the capital by the labor. That is a better financial credit offer with longer maturity and the entry of the foreign capital. Disadvantages of financial liberation Financial liberation limits the role of the government in managing the economy with the intervention of the financial sector significantly. However, the vulnerability of the economy usually tends to increase and subsequently, the financial crisis are liable to follow the financial liberation program in most countries.
In the present configuration of an increasingly globalised world, the volume of global trade transaction has been continually increasing. Furthermore, it can also be argued that the current international trade regime has its root on the specific neo-liberal attributes to globalisation. Indeed, institutions such as the International Monetary Fund, the World Bank, and the World Trade Organization have been very staunch in promoting neo-liberal values in the implementations of economic and trade regulations (Lyon and Moberg, 2010:1-2). However, these promotions of the implementation of neo-liberal trade policies have yet to bear fruits in most of the developing countries (Stiglitz, 2006). Rather, there is an increasing concern of an international
As the rapid growth rate of economic environment in current world market, economic globalization is affecting emerging countries economic development by increasing oversea business activities such as FDI, export-import, also the culture communication between different countries are interacting and influencing each other during diplomatic business activities. The globalization also simulates innovation and creativity in the emerging countries; it encourages the spirits of entrepreneurship and drives the emergence of innovative business models. China as one of the fastest growing countries in efficiency-driven economy system, where economic growths are based upon manufacturing in domestic markets, outsourcing, and exporting products to foreign
This mean that cash flow increase and stock market returns will increase. Maysami et al. (2004) point out that there is a positive significant relationship between Singapore’s stock market returns and money supply changes. In the monetary portfolio theory, the money supply volatility alters the equilibrium position of money, hence changing the composition and assets price in an investor’s portfolio (Rozeff, 1974). Moreover, money supply innovations may affect real economic variables which cause a lagged positive impact on stock market returns (Rogalski & Vinso,
And for economies to progress, banking and financial institutions have a huge role as they are institutions of money market which provides funds (through loan), helps government (by lending short term funds at low interest rates on the basis of treasury bills) and plays a role in monetary policies and financial motility along with primary banking services. They also contribute significantly to national output as well as to credit creation in an economy. Thus in developing countries like India where this sector also has a significant impact on efficiency of resource mobilisation and allocation in real economy to generate higher rate of growth , it is necessary for banking sector to change or transform radically in order for Indian economy to stay stable or grow with respect to global financial market. Further, after nationalization of major Indian banks in 1969 and 1980 serious problems like a decline in productivity and efficiency, and erosion of the profitability of the banking sector emerged where the quality of loan portfolio deteriorated which, in turn, came in the way of banks income generation and enhancement of their capital funds. Inadequacy of capital accompanied by inadequacy of loan resulted in loss provision and into the adverse impact on the depositors’ and investors’ confidence.
The importance of FDI and trade openness was the notorious features trend toward globalization in recent years and has emerged as one of the talking points by the economist when explaining the growth of developing countries. As this two component is assumed to have a parallel relation, the positive trade openness contributes to nation growth by improving productivity and export capability. Trade openness also provides a greater efficiency, It is found that the countries with more openness relatively outperformed their economy than less opened countries because they indirectly promoting the FDI to their countries thus enjoying the benefits of
Thus, economic globalization in the form of multinational corporations can prompt to exploitation of the local labor force, channeling the critical resources away from the country itself into foreign exports, and make the developing countries depend too much on developed or wealthy countries. That is why, there is some concern regarding economic globalization. Economic globalization has successfully increased the gap in wealth between developed and deveoping countries. Other than that, because developed countries’ economy have large sums of wealth available for investment in developing countries, there is concern that foreign direct investment (FDI) may create bubble markets in developing countries. As what this paper has stated before, economic globalization may result in unequal economic relations of dependency between developing and developed countries.