Economic Nationalism and Foreign Domestic Investment (FDI)

Economic Nationalism and Foreign Domestic Investment (FDI)

Yang Liu (Southern New Hampshire University, USA)
DOI: 10.4018/978-1-5225-7561-0.ch011

Abstract

Nationalism is not closing the door to other nations. On the contrary, sometimes it exhibits as crazy expansion. For example, during the Second World War, both Adolf Hitler and Emperor of Japan claimed that they are helping their citizens. However, that is not the truth. Both German and Japanese people suffered something that they wouldn't have suffered without this war. Meanwhile, nationalism is one reason that the other countries keep fighting the war. By observing the relationship among nationalism, government policies and intervention, and FDI, this chapter attempts to offer an understanding of how FDI is impacted by the nationalism and government policies and intervention by providing two cases: the Brexit of the UK and the “American First” of the USA.
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Introduction

FDI (Foreign Direct Investment)

The OECD (Organisation for Economic Co-operation and Development) offers definitions of FDI. In term of the BD4 (OECD Benchmark Definition of Foreign Direct Investment: 4th Edition, 2008), FDI is an investment made from a foreign economy acquiring a constant interest, such as managerial power in the targeted corporations and entrance to a certain market, which otherwise inaccessible to the investors. The country of origin of the firm is the home country and the foreign country is the host country. In essential, FDI builds an economic bridge linking home countries and host countries. From a host country perspective, direct investment in any form by a foreign MNE is the inward direct investment and this is the outward direct investment for the home country. It can enhance the corporation and national economic development, competitive capability for the countries, and technology improvement.

Therefore FDI is different from the international trade. However, it was born from the international trade. Motivations of FDI originate from avoiding uncertainties because markets are not perfect as well. The market imperfections give both country-specific and company-specific advantages. Thus MNEs (Multinational Enterprises) located in different countries invest in other countries to seek their country-specific advantage and avoid risks from their home countries (Dunning, 1988; Dunning, 2001). John Dunning (1998 & 2000) proposes four basic motivations for corporations to involve in FDI. (1) Corporations chasing specific natural resources, low labor cost, or technological, managerial, or organizational technology, are resource seeking motivated. (2) Corporations tending to enter a new or large market are market seeking motivated. (3) Corporations diversifying risk or enhancing the economic scope and scale are efficiency seeking motivated. (4) Corporations trying to hold the position of competitiveness, in the long run, are strategic-asset seeking motivation. Therefore, through FDI, corporations which invest in foreign countries explore new markets, channels, save on production facilities and access the new technology and newer ways of conducting business. In addition, companies which receive the FDI can gain new managerial skill, high wages. In sum, FDI is a way to avoid risk in corporation’s domestic country. It can be pushed out or pulled in some countries for different motivations.

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