Economics (Multinational firms. FDI Question 2: Balancing macroeconomic environment is one of the most important aspects for a host government. Comment on the roles of fiscal measures (e.g. corporate income taxes and import tariffs) monetary and exchange rate policies on inward FDI inflows. Solution INRODUCTION The growth of private forign direct investment in the developing world has been extremely rapid in decent years.MNC\'s are not in the development busines.Thier objective is to maximize their return on the capital.They seek out best profit opportunities.MNC\'s carry with them technologies of production,tastes and styles of living ,managerial philosophies and diverse business practices.Although globally,FDI peaked in 2000 but fell aftermath of the 9/11 terrorist attcks,FDI has been rebonded for several years. MNC\'s underatke five different forms in the under developed countries. 1. Branches in the different nations 2. Subsidiaries 3. Joint-venture companies 4. Franchise holders 5. Turn Key projects There has been rapid expansion of the activities of MNC\'s.The situation of today (2014- 2015),with WTO came into being.Now rougly 5-6 lakhs MNC\'S are operating in one form or the other across the world.The focus of the MNC\'s is basically on the primary countries and the extractive industries. Macroeconomic poilcy of a host country creates both problems and opprtunities for international firms. FICAL POLICY MEASURES 1. Investment incentives: There are two kinds of investment incentives a. Fiscal incentives: policies that are designed to reduce tax burden of a firm.It includes tax concessions in the form of reduced corporate income tax, exemption from improt duties etc. b. Financial incentives: They are direct contribution to firm by the government. It includes subsidised loans,loan guarantees, governmnet insurance at preferential rates. 2. Removal of Restrictions: Various forms of restrictions were applied to FDI in the developing countries in the pre liberalised era.Example:allowing only a fixed percentage of foreign owned capital in an enterprise,restrictions on reimbursement of capital upon liquidation.However in the WTO regime, due to enforcement of TRIMS(Trade related Investment Measures) many of these restrictions have now been withdrawn.The types of restrictions realted to FDI has been greatly liberalised. For example: large number of countries in Asia do not require investment approvals or licensing except for few sectors that are closed to FDI(mainly for security reasons). 2. MONETARY POLICY a. Funds originating in advanced economies dominate capital inflows to large emerging economies.These flows are influenced by advanced economic policies including monetary policy.The developments in financial markets have extended the role of large cross border financial intermediaries and liquidity ceating instruments in global capital flows. b. Other policy measures inclues careful monitoring of systematic non bank financial instructions with.

1. Economics (Multinational firms. FDI Question 2: Balancing macroeconomic environment is one
of the most important aspects for a host government. Comment on the roles of fiscal measures
(e.g. corporate income taxes and import tariffs) monetary and exchange rate policies on inward
FDI inflows.
Solution
INRODUCTION
The growth of private forign direct investment in the developing world has been extremely rapid
in decent years.MNC's are not in the development busines.Thier objective is to maximize their
return on the capital.They seek out best profit opportunities.MNC's carry with them
technologies of production,tastes and styles of living ,managerial philosophies and diverse
business practices.Although globally,FDI peaked in 2000 but fell aftermath of the 9/11 terrorist
attcks,FDI has been rebonded for several years.
MNC's underatke five different forms in the under developed countries.
1. Branches in the different nations
2. Subsidiaries
3. Joint-venture companies
4. Franchise holders
5. Turn Key projects
There has been rapid expansion of the activities of MNC's.The situation of today (2014-
2015),with WTO came into being.Now rougly 5-6 lakhs MNC'S are operating in one form or
the other across the world.The focus of the MNC's is basically on the primary countries and the
extractive industries.
Macroeconomic poilcy of a host country creates both problems and opprtunities for international
firms.
FICAL POLICY MEASURES
1. Investment incentives: There are two kinds of investment incentives
a. Fiscal incentives: policies that are designed to reduce tax burden of a firm.It includes tax
concessions in the form of reduced corporate income tax, exemption from improt duties etc.
b. Financial incentives: They are direct contribution to firm by the government. It includes
subsidised loans,loan guarantees, governmnet insurance at preferential rates.
2. Removal of Restrictions: Various forms of restrictions were applied to FDI in the developing
countries in the pre liberalised era.Example:allowing only a fixed percentage of foreign owned
capital in an enterprise,restrictions on reimbursement of capital upon liquidation.However in the
WTO regime, due to enforcement of TRIMS(Trade related Investment Measures) many of these

2. restrictions have now been withdrawn.The types of restrictions realted to FDI has been greatly
liberalised. For example: large number of countries in Asia do not require investment approvals
or licensing except for few sectors that are closed to FDI(mainly for security reasons).
2. MONETARY POLICY
a. Funds originating in advanced economies dominate capital inflows to large emerging
economies.These flows are influenced by advanced economic policies including monetary
policy.The developments in financial markets have extended the role of large cross border
financial intermediaries and liquidity ceating instruments in global capital flows.
b. Other policy measures inclues careful monitoring of systematic non bank financial instructions
with the so called shadow banking sector and further progress on recovery and resolution
planning for large institutions.
3. EXCHANGE RATE POLICIES
Countries have relied exclusively on various exchange rate policies such as Foreign exchange
market intervention in Japan and Switzerland ,low policy rate in Turkey and currency
appreciation in South Africa. Currency appreciation would facilitate external adjustment. It
would also help to counter inflation pressures by tightening monetary condition.If capital inflows
are likely to be sustained over the medium run,currency appreciation is needed to keep the
exchange in line with evolving fundamentals.
Other methods include:
1. R and D support
2. Environment standard support
3. Labour training support
4. Governmnet subsidies
CONCLUSION:
The advocates of a central role for private forign investment tend to be free narket proponents
who firmly believe in the efficiency and beneficence of the market mechanism.