FDI Flows by Region ($ billion) Notes: 2004 data represent preliminary estimates. Sources: Complied by the author from data in United Nations, World Investment Report, 2004 (New York and Geneva: United Nations, 2004), and United Nations Conference on Trade and Development, “World FDI Flows Grew and Estimated 6% in 2004,” UNCTAD press release, January 11, 2005. Figure 7.2, p. 241
Three primary costs of FDI concern to host countries are: adverse effects on competition, adverse effects on the balance of payments; and a loss of national sovereignty and autonomy.
Historically, ideology toward FDI has ranged from a dogmatic radical stance that is hostile to all FDI at one extreme to an adherence to the noninterventionist principle of free market economics at the other. Between these two extremes is an approach that might be called pragmatic nationalism.
Table 8.1, p. 268
Foreign Direct Investment A Prerequisite to Economic Growth?
Foreign investment that establishes a lasting interest in or effective management control over an enterprise. Foreign direct investment can include buying shares of an enterprise in another country, reinvesting earnings of a foreign- owned enterprise in the country where it is located, and parent firms extending loans to their foreign affiliates. International Monetary Fund (IMF) guidelines consider an investment to be a foreign direct investment if it accounts for at least 10 percent of the foreign firm's voting stock of shares. However, many countries set a higher threshold because 10 percent is often not enough to establish effective management control of a company or demonstrate an investor's lasting interest.
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Quantitative change or expansion in a country's economy. Economic growth is conventionally measured as the percentage increase in gross domestic product (GDP) or gross national product (GNP) during one year. Economic growth comes in two forms: an economy can either grow "extensively" by using more resources (such as physical , human , or natural capital ) or "intensively" by using the same amount of resources more efficiently (productively). When economic growth is achieved by using more labor, it does not result in per capita income growth (see Chapter 4 ). But when economic growth is achieved through more productive use of all resources, including labor, it results in higher per capita income and improvement in people's average standard of living . Intensive economic growth requires economic development .
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