How FDI Helps Nurture Domestic Competition Environment Dissertation

How FDI Helps Nurture Domestic Competition Environment - Dissertation Example Second, the typical Solow growth model is offered aiming at simplifying the main drives for economic growth. Moreover, a comprehensive analysis of the actions of the MNEs is included. As a result, this method provides a multi-dimensional approach which puts emphasis on the modifications in efficiency, labour and possible spillover effects arising from the MNEs’ actions in China. Table of Content Contents Abstract 2 Table of Content 3 Contents 3 Introduction 3 Literature Review 5 Theoretical Framework 6 The Model 6 Conceptual Framework 11 Unconditional Approach 13 Conditional Approach 14 Total Factor Productivity Approach 16 Methodology 18 Research Methods 18 Data Sources 19 References 20 Introduction One of the greatest sensitive zones in international economics currently is Foreign Direct Investment (FDI). Developing countries like China dread misuse on one hand, and insufficient access to foreign capital, expertise, marketing, and administration skills on the other. FDI comp rises a course of financial capital and impalpable assets like technology, professional capabilities, promotion skills and other possessions (Blonigen, 2005). It is worth noting that direct investment, in most cases, it begins with a minute or no net flow of financial capital. Occasionally, the parent company only adds its trademark name, managerial principles pegged with other assets of the less tangible variety (Moosa, 2002). A good prevarication strategy for a parent company that has foreign currency possessions in its partners is to take on foreign currency obligations as well (Ruane, & Ugur, 2005). This is made available by appropriating in foreign moneys that are used to fund the affiliate. In the current years, the portion of the developing nations as a basis of FDI significantly intensifies. However, the lion’s part is reserved to the EU nations, USA and Japan which make up for 80-90 percent of the entire FDI outflows. In situations where FDI is measured as a proporti on of GDP, the developed nations still account for the inordinate majority of FDI outflows (Kneller & Pisu, 2005). The role of FDI unavoidably increases in a quickly globalizing world. Bill Gates once said: â€Å"No one gets to vote on whether technology is going to change our lives†. By utilizing this quote as a representation, comparable parallels can be made in respect to FDI. No doubt, FDI has developed into an evitable part of the current globalized world and no person has the authority to stop this development. Therefore, it is vital that the consequences of FDI to the host economies be carefully and independently assessed. It is worth declaring that this is not an easy task, bearing in mind the schism of the bulk of opinions (Simpson, 2010). GDP, Export and FDI flows* *(Constant 1995 US$ index numbers, 1970=100, log scale) Source: Navaretti & Venables, 2004 Literature Review Theoretical Framework This chapter targets to provide the dissertation with a resilient theoret ical framework in association with economic growth pegged with its determinants. By understanding and appreciating what motivates the development in the short and long-run, it will be much tranquil to identify the influence that FDI has on the domestic competition environment. The beginning point of this investigation is the structure of a production function. Bestowing Alfaro, Kalemli-Ozcan and Sayek, (2009), we will use Solow’s neo-classical model of economic growth as a foundation of the discussion. This model was a