ACCOUNTING

Accounting

Accounting

Introduction

The aim of this assignment is to discuss the pattern of global FDI flows by recipient countries and regions 1990-2011. One of the main reasons that have been offered to explain the presence of FDI in an economy is the search for new markets. There are several reasons for a company to invest in another country (Moran, 1998). Almost all the arguments that have been offered for the existence of FDI can be grouped under three basic objectives: the attempt to enter new markets, increase in the production efficiency through cost reductions and attempted exploitation of certain strategic assets (Moran, 1998). The internationalization of production is one of the central aspects of the phenomenon of globalization of the world economy (Halvorson, 1994).

The graph reveals that since 1990, the foreign direct investment is showing an increasing and decreasing trend. Therefore, we can say that the worst period in terms of decline of global FDI occur due to the global financial crises from 2007 to 2009. Foreign direct investment is the part of national accounts of the country. In the equation of calculating national income the foreign investment is included. The equation of national income is made up of various factors, the equation looks like; Y=C+I+G+(X-M). United States is the world's largest acceptor of foreign direct investment (Dowdeswell, 2008). In United Nation 194billion dollars of foreign direct investment took place in year 2010. This is 84% of foreign direct investment of United States. This foreign direct investment came from eight countries of the world like Switzerland, United Kingdom, France, Netherlands, and Canada and from some other countries. Countries which have less capital controls but high trade with United Sates also invest in bonds and equity markets of United States (Gilroy, 2005).

Investment liberalization can lead to an increase in trade flows and produce a strong trend towards price convergence. FDI can be complementary to trade in terms of volume and in terms of welfare (Dunning, 2002). During 2008 and early 2009, global flows of foreign direct investment fell after an uninterrupted period of growth between 2003 and 2007. In the same years, the weight of developing countries (DC's) and transition countries has increased, reaching 43% of total FDI inflows in 2008. In the same year, foreign direct investment input began to fall consistently in developed nations, a decrease of 29% compared to 2007. While in countries with developing and transition countries continued to grow at a rate of 17%. Similarly in 2008 and early last year, outflows also declined in developed countries and increased by 3% in developing countries with a particularly active role of the investors in the Asian economies and especially China (Mohan, 2008).

By the end of 2012,the International Foreign Direct Investment fell more than 8%. This amount was approximaletly $61,000 million. If this is compared o the previous years, the FDI stood at $37,000 million in 2010-2011 in Latin American and Asian countries like India and China.

Discussion and Analysis

FDI has a positive effect on economic growth ...