Essay Example on International investments have Witnessed Significant Shifts








Introduction. International investments have witnessed significant shifts that have strengthened government corporate relationships Few large multinational corporations dominated foreign investments motivated by a greater need to secure sources of raw material supplies as well as establish stable markets for their final products In the past foreign investment was motivated by colonial expansion As time went by the listed companies in the OECD stock markets became large multinational corporations with an economic interest in foreign countries defying the earlier view that direct investment is merely an adjunct to trade Dolzer and Schreuer 2012 p 16 Towards the end of the nineteenth century large as well as small enterprises gained much interest in the foreign direct investments increasing its popularity but surprisingly widening the potential influence from multilateral international institutions Individual investors were more than willing to integrate foreign investment strategies into their enterprise development plans due to easy access to mutual funds for upcoming investors However the foreign direct investment being an economic adventure is flawed by uncertainties Present multilateral institutions obligated to govern such massive economic enterprises bows to the internal as well as external pressure leaving investors with little policy options It is therefore important to note that existing multilateral international institutions although have the best policies to regulate foreign direct investments are functionally absent to govern such trades Åslund 2013 p32 The scope of this paper thus is to evaluate the reasons for the absence of multilateral institutions to regulate foreign direct investment The paper will begin by defining concepts that will shape the general direction paper will take

After concept definition a background view of the history of multilateral institutions will be undertaken which will provide a glimpse into what is expected in the subsequent sections of the paper A literature review of the supporting evidence will follow suit and a conclusion that provides a snapshot of the findings from the reviewed literature Possibly there will be a conclusion as well as recommendations drawn from the paper findings Concept definition By definition John Gerard Reggie describes multilateralism, as composed of three principles not limited to nondiscrimination indivisibility as well as diffused reciprocity Indivisibility, refers to a security arrangement where an attack on a single state translates into an attack on all the allies Dixit 2009 p14 Non-discrimination principle, on the other hand, refers to equal treatment to all parties under the banner of most favored nation methodology in trade agreements Further diffused reciprocity is an affirmation that states have alternatives and do not solely rely on a single quid pro quo Foreign direct investment, on the other hand, refers to purchase or introduction of an economic adventure in by investors beyond their native countries and enjoys full ownership rights The organization of Economic Cooperation and Development equates control to company ownership of more than 10 Dixit 2009 p9 Background information Direct foreign investment debates have been in existence for quite some time

One of the reasons resonates with the increase in the overall global financial flow increasing to 315 from the previous 60 between the years 1985 and 1995 The DFI is also associated with persistent growth in the foreign direct investment stocks with the trends projecting a reduction in the overall world trade in tangible goods as well as services when compared to the excess sales realized by such multinational corporation foreign affiliates One-third of world trade, for instance, accounts for the intra firm trades The second one-third of the world trade is as a result of multinational corporations trading with non-affiliates with the remaining third equated to trading among national firms Another reason for a focus on the foreign direct investment can be attributed to the pressures that result from the ongoing world economy integration Bayne and Woolcock 2011 p 105 The less or more consistent rise in the ratio of GDP to world trade the significance of foreign owned distribution, as well as production tools in the home and foreign countries, are held as evidence for globalization Foreign direct investment is also conceived as a strategy of enhancing efficiency in the utilization of the world s scarce resources The recent example is its role in economic stimulus growth in the world s underdeveloped and developing countries partially due to the declining reliance on development assistance that has been exploited to uplift such countries economically

Most significantly the foreign direct investment can act not only as a source of the much sort after capital but also as avenues for new technological advances as well as intangibles such as effective market networks and managerial skills Direct foreign investment is also a proviso for spillover in innovations stimulates competitive advantage a capital formation which in the long run contribute to positive economic growth, as well as the creation of employment opportunities Reasons for nonexistence of multilateral institutions Multilateral institutions, face lots of discrimination in the manner governments treat foreign investors as compared to their local investors The bias towards foreign investors has been in existence since the inception of globalization In the early 1800s, for instance, Latin Americans who had achieved independence provided trade incentives to attract foreign investors with disregard to the effect that the approach might cause to their local economies Their constitution, in addition, encouraged an influx of foreign investment with a promise of equal treatment with natives despite the existing tensions between the country and the European nations that did not favor such arrangements but relied on the Calvo doctrine provisions Asiedu 2006 p 64

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