Overseas assistance and FDI

• What are the three primary factors that motivate MNCs to increase their level of FDI?


  Market seeking, resource seeking, and efficiency seeking
• Why are MNCs attracted to market seeking?

  To sell products globally for economies of scale and increased revenue
• What are the benefits of producing within the market for MNCs?


  Cheaper transport costs and avoidance of trade barriers
• What does resource seeking involve for MNCs?


  Taking advantage of natural resources within a country
• How might MNCs increase efficiency through FDI?

  By relocating part of their production to another country
• What are the benefits of FDI?

  • Injection into the circular flow of income
  • Positive effects on the Balance of Payments (BoP)
  • Increase in tax revenue for the government
  • Improved productivity
  • Technology transfer
  • Supply of capital and technology by MNCs
  • Provision of modern sector jobs for local workers
  • Local workers learning new skills
• What are the costs of FDI?

  • Employment created may only be short-term
  • MNCs may invest in labour-saving technology
  • Net effects on BoP may be less than anticipated
  • Taxes received by the government may be less than expected
  • Limited productivity gains and technology transfers
  • Environmental costs
  • Potential exploitation of market power by MNCs
• How do BRIC countries compare with the world growth rate?

  BRIC countries have shown significant growth compared to the world average
• What advantages do developed countries gain from international trade?

  Access to raw materials, wider consumer choice, and technical knowledge
• What are the disadvantages of international trade for developed countries?

  Integrated countries become more susceptible to external shocks
• How do emerging economies benefit from international trade?

  By transitioning from less developed to developed and gaining capital goods
• What are the disadvantages of international trade for developing countries?

  They may not benefit due to a focus on primary production
• What are the general advantages of international trade?

  • Breaks down domestic monopolies
  • Increases quality of goods and services due to competition
  • Leads to economies of scale and greater efficiency
  • Facilitates global growth and development
• What are the general disadvantages of international trade?

  • Vulnerability of infant industries to volatile prices
  • Structural unemployment due to displacement of uncompetitive industries
  • Diminished diversity of output as local producers leave the market
• How does international trade affect local producers?

  Cheaper imports may destroy their market, reducing diversity of output