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Chapter 15: Multinationals and Migration: International Factor Movements

Chapter 15: Multinationals and Migration: International Factor Movements. Foreign Direct Investment (FDI).

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Chapter 15: Multinationals and Migration: International Factor Movements

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  1. Chapter 15: Multinationals and Migration: International Factor Movements

  2. Foreign Direct Investment (FDI) • Flow definition: Flow of funding provided by investors (usually firms) to establish or acquire foreign companies or to expand or finance existing foreign companies that the investors own. • Key is sufficient ownership to control or influence the management of the foreign company. • Stock definition: Total value of existing funding (equity and debt) of foreign companies that has been provided by investors that own these foreign companies.

  3. Multinational Enterprise (MNE) • A firm that owns and controls operations in more than one country. • The parent firm of the MNE is located in the home country. The home country is the source country for outward FDI. • The MNE has one or more affiliates located in one or more host countries. The host country is the destination country for inward FDI.

  4. Why Do MNEs Exist? • Inherent disadvantages of operating a foreign affiliate competing against local firms. • Firm-specific advantages of the MNE, especially intangible assets. • Internalization advantages in using these assets. • Location factors based on resource costs and availability, customer demand, government policies, and other considerations. • Oligopolistic rivalry that uses FDI in the firms’ strategies for competing.

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