Impact of Political Factors on FDI Ownership Structure Decision

Running Head: RESEARCH PROPOSAL 1
Pitcher’s
Name
Your
name
here
FoR
category
AREA OF RESEARCH
Jiménez, Alfredo; Alon, Ilan
(2018). Corruption, Political
Discretion and
Entrepreneurship. Multinational
Business Review. ISSN: 1525-
383X. 26 (2). s 111 - 125.
doi:10.1108/MBR-01-2018-
0009.
Date
Completed
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date
here
Working Title
The impact of political factors on FDI ownership structure decision

RESEARCH PROPOSAL 2
Abstract
In the contemporary globe, there has been an increase in Foreign direct investment. The
growth in the sector is owed to the globalization aspect adopted in the business field. A gap is
therefore created, necessitating the need to study those factors affecting the growth. This
proposal emphasis more on the effect of political factors since they turn out to be a critical
determinant in the field of foreign direct investment. This paper aims to develop an
understanding of the relationship between political and global business development. The
knowledge acquired is necessary for application in the business field.

RESEARCH PROPOSAL 3
Basic Research Question
What is the impact of political factors on FDI ownership structure decisions?
Motivation/Puzzle
The process of asset-owning or shareholding of a business or a company in a foreign country
is what constitutes foreign direct investment (Jensen, 2012). The entitlement gives the
foreigner an opportunity to participate in the decision-making process of the
company/business since he become part of the management. There is a tremendous growth of
FDI in the contemporary world. This growth is linked to the emerging trend of globalization
incorporated in the business market. This is also influenced by the political factors of the
different countries. In their research, Jensen and Nathan (2012) noted the benefits accrued by
the FDI are enjoyed by the developed countries. They quoted 67% of the total profit being
flown to developed countries. The effect is as a result of restrictions put by the developing
countries to curtail FDI (Amadeo, 2018). This prompted investors to shift their businesses to
developed countries where investment conditions remain protective and favourable. This
proposal evaluates and examines the effect of political factors on foreign direct investments.
This is achieved by reviewing on three factors including joint venture, democracy and
government trust. The review extends to include a hypothesis on how the state trust affects
the relationship strength between joint venture and democracy and also the hypothesis on the
increased likelihood of Multinational corporations to opt for joint venture due to democracy.

RESEARCH PROPOSAL 4
Key paper(s)
Scholars have focused on global economic growth since it remains a major field with a great
impact on world development. As a result, different views have been developed on the topic
based on various research. Among the key factors cited in the study included the influence of
government policies and political factors on FDI. Studies have shown that supportive
government policy and regional integration have encouraged FDI in various countries. China
serves as an example of countries that have benefited from FDI due to supportive policies and
integration. According to research conducted by Kari, Sergei, and Marc (2016), China was
the leading country in East Asia on FDI hosting and also led in the entire world in the years
2013 and 2014. The increase contributed to the country’s revenue by $128 billion. The
investors were encouraged by the supportive policies developed by China's development and
the integration created by the state. The supportive climate also helped China citizens to
develop their companies to other countries where favorable growth rate existed. Also, taxes
imposed on foreign investments have been identified as a factor affecting FDI globally. The
tax imposition effect may originate from the mother country or the foreign country. Hartman
argues that high taxes in mother countries do compel investors to invest in foreign countries
where the taxes are lower (Zhang, 2011). This is mostly related to the profit-oriented nature
of the investors. On the other hand, high taxes in foreign countries discourage foreign
investment since it increases the risk of incurring losses in any investment. In developing
countries, high taxes are put in place to prevent international trade investments. The
restriction is aimed at protecting local industries and an increase in government revenue.
Contribution
Trust of government
A critical factor that involves the transfer of assets from the local company to foreign
investors is trust. Many countries have adopted trust through legislation. Looking at China as