Global Business And Sustainability Contents

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Global Business
and Sustainability

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Contents
INTRODUCTION......................................................................................................................3
Spillover and Linkages: Differences..........................................................................................3
Spillover.................................................................................................................................3
Linkage...................................................................................................................................4
Costs and Benefits of Inward Foreign Direct Investment (FDI)................................................4
Host Country Effects: Benefits..............................................................................................5
Resource transfer effects....................................................................................................5
Employment Effects...........................................................................................................5
Balance of Payment............................................................................................................5
Host Country Effects: Costs...................................................................................................6
Adverse effect on competition...........................................................................................6
Adverse Effect on the Balance of Payment........................................................................6
National Sovereignty and Autonomy.................................................................................6
Home Country Effects: Benefits............................................................................................6
Effect: Negative or Positive...................................................................................................7
Different Impact of FDI in emerging nations............................................................................7
Effect of FDI: India................................................................................................................7
Effect of FDI: Brazil..............................................................................................................9
References................................................................................................................................10

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1. The role of Foreign Direct Investment in economic development of emerging
countries: What is the difference between spillovers and linkages? Explain the
different kinds of benefits and costs that arise from inward FDI, and how can
these lead to both positive and negative outcomes? Use two emerging economies
as examples of different impact of FDI on economic development.
INTRODUCTION
Foreign direct investment (FDI) has grown to be a significant source of private foreign
financing for emerging nations. For the most part, it is motivated by the shareholders' long-
term chances for profiting from industrial operations that they directly control, unlike other
major types of private capital flows. While foreign banks lend and invest in activities
managed by banks and portfolio investors, they are not engaged in activities that are driven
by short-term profit concerns (interest rates, for instance) and are susceptible to herd
behavior. They can be seen in, for example: FDI in the Asian countries hit hard by the 1997
financial crisis; bank lending & portfolio equity investment; and FDI from the United States.
For the five most impacted countries, FDI flows stayed strong in all instances and only
marginally decreased again for group, whereas bank credit and portfolio equity stake flows
plummeted dramatically and even dropped sharply in the year of 1997.[ CITATION Pet19 \l
16393 ]
For underdeveloped countries, FDI has a far higher impact than it does for developed ones.
Although FDI can increase investment opportunities and capital formation, it is also a way to
transfer production technologies, skills, inventive ability and organizational and managerial
practices across borders. If the climate is right, these resources can also be transmitted to
domestic companies and the wider economy of the host country, if they are part of a
transnational system or are closely linked to such networks through non-equity arrangements.
For FDI attributes that boost productivity and competitiveness to spread across a country,
there must be strong supply-and-distribution links between overseas subsidiaries and
domestic firms as well as strong domestic capabilities to capture spillovers (i.e., indirect
effects). When it comes to encouraging multinational companies to locate their business
operations in first place and ensuring that they do so, policies matter.[ CITATION Joh17 \l
16393 ]
Spillover and Linkages: Differences
Spillover
Spillovers (and externalities) are indeed the effects of an economic transaction on third
parties who are not directly involved in it. Some of the transaction's expenses or advantages
aren't shared equally among the participants (firms, customers, and factor owners). spillover
effects can be positive or negative depending on whether societal advantages outweigh
private benefits. Spillovers, on the other hand, are not always cause for alarm. Pecuniary and
non-pecuniary spillovers are the two types of externalities that lead to resource misallocation.
As a result of an economic transaction's effect on the prices of goods and other factors, there
are monetary (or vertical) ripple effects that affect the prices of other goods, factors, and
assets. Pecuniary spillovers are defined by Dunning and Lundan as "the amount and/or

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circumstances of supply of, or demand for, other goods and services by some other firm or by
consumers," resulting from purchaser linkages involving the international market (MNE). A
deleterious pecuniary externality is created, for instance, when FDI in the oil and gas industry
increases demand for engineers. This increases labor costs for all companies that employ
engineers. Because of this, the market's workings are reflected in financial spillovers by way
of relative price changes.[ CITATION Lin17 \l 16393 ]
Real resource effects on third parties which occur whenever the actions of one firm influence
the technology or economic output of another firm in ways the first firm cannot capture are
known as non-pecuniary spillovers. Despite the fact that the term "non-pecuniary spillovers"
encompasses a broader concept than "technological spillovers," I'll stick with the latter term
for the remaining portion of this editorial. Non-market technology spillovers are informal,
involuntary, and non-voluntary transfers of technology. Pollution and excessive use of
common property resources are well-known examples of negative spillovers. It is possible for
local businesses to benefit from the MNE's product or process technology by copying it in the
form of informal knowledge transfers and demonstration effects. Competition from an MNE
can force local firms to be using existing technologies more effectively or update in order to
stay competitive. This provides an additional origin of technological spillovers from an MNE
entering an industry. According to Dunning and Lundan, economists are interested in
measuring FDI-induced technological spillovers because "they represent the proverbial 'free
lunch' – something useful that is received without having to pay full compensation."
Linkage
Although the primary purpose of vertical linkage is to generate financial spillovers, they are
also frequently responsible for technology spillovers. For example, MNEs can allow
learning-by-doing by local businesses, which can lead to increased productivity. For both
upstream and downstream companies, MNE training of host nation personnel increases the
labor pool's skill level and productivity while also providing a source of new start-up
businesses. All of these behaviors result in non-market, non-intentional, informal transfers of
goods or services. For this reason, it might be difficult to separate the financial and
technological spillovers of vertical links. The key to FDI's technical spillovers is that local
firms and organizations benefit from FDI's residual effects without compensation from the
foreign entrants. Remaining effects will likely boost industry and even national productivity,
resulting in higher national well-being for the country that hosts them.
Scholars may misunderstand or equate linkage with spillovers because to the difficulty in
distinguishing between financial and technological spillovers that can result from vertical
linkages. For this reason, academics have tended to split spillovers into subcategories that are
more easily quantifiable empirically, such as financial and technological. Intraindustry,
interindustry, and agglomeration/network spillovers are well-known classifications of
spillovers. FDI spillovers that affect companies in the same industry (competitors) are known
as intraindustry spillovers. Demonstration effects (e.g., emulating FDI processes and
products), competition effects (e.g., local firms' responses to the "fresh winds of
competition"), and labor market impacts (e.g., FDI provides a more highly skilled labor pool)
are all examples of these spillovers.[ CITATION Dav172 \l 16393 ]