How Is Britains Economy Affected By Foreign Investment Finance Essay - Free Essay Example

Sample details Pages: 6 Words: 1703 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? Foreign Direct Investment is considered by many to be an important driver of growth within countries (OECD, 2002). This is thought to be due to advantages in exploiting competitive pressures in markets, stimulating technology transfers and increasing innovative activity. Such activity is sought to be encouraged and therefore there is widespread agreement that policy should aim at minimizing or eliminating obstruction to FDI. This study will examine the benefits that FDI has had on the Britains economy. It shall attempt to assess how policy has helped to attract FDI and assess the economic future of the UK. Don’t waste time! Our writers will create an original "How Is Britains Economy Affected By Foreign Investment Finance Essay" essay for you Create order Research Objectives The general objective of the research is to identify the impact of foreign direct investment on the British economy. The specific objectives of the paper shall be: To evaluate the economic growth trend of the UK and the policies implemented on foreign direct investment. To evaluate the economic impact of foreign direct investment within the UK. To assess the economic future of the UK. Changes from Initial Research Proposal One of the original ideas of the report was to evaluate the effect that FDI has had on the UK in terms of changes to technology, management style, employment etc. However after the consideration of relevant material it appears that this area of FDI research is significantly large and will draw the report away from the economic impacts of FDI, therefore to ensure that the report is coherent and remains relevant to the title given I shall only briefly consider such impacts within the report and remain focused on the core economic effects that FDI brings to the UK. Draft Literature Review In the case of whether FDI benefits or detracts from a countrys economy, a vast body of literature is available. Studies such as Mac Dougall (1960), Kojima (1973), Hymer (1976), Azmat (1999), Andrea Marino (2000), Kishor (2000), Balasundram (2000), Chakrabarti, (1997, 2001) and Gordon (2001) have identified variables that affect the flow of FDI into countries as market size, quality of infrastructure, labour cost, economic openness, return on capital and political stability. Sung-Hoon Lim et al (1998), describe the spill over benefits that FDI may bring to a country, including inflows of foreign capital, increased employment, increased gross national product and transference of multinational corporations advanced skill and technology. These positive benefits may be the main goal of governments implementing policy to attract FDI. Studies looking at the determinants of FDI found that many factors can affect the attractiveness of a country for investors. Root and Ahmed (1979) found that political stability was a significant factor, changes in government leadership was a contributing element to this. In developed countries, Nigh (1985), explained that inter country political events effect investment attractiveness. Lucas (1993) shows how President Aquinos accession in the Philippines positively relates to inward FDI flows. Equally the perceived negativity of Sukarnos rule in Indonesia led to a negative effect in FDI. Kadi (1999) also discusses that the low percentage of FDI in the Middle East is due to factors including the political instability in that region, ascertained from a cross-section of data involving FDI and economic freedom. Helliener (1988) and UNCTAD-DTCI (1996) suggested that investment incentives created by governments have a limited influence in FDI decisions. A study by Scaperlanda and Mauer (1969) hypothesised that FDI inflow would respond positively once a recipient country had reached a market size threshold that allows economies of scale to be achieved at the utilisation on resources. Post studies have tested this theory with mixed results. Lipsey (1999) found that higher per capita income, which acts as a factor in determining market size, the greater the inflow of FDI; however Jaspersen et al (2000) found this to show a negative impact on FDI inflow. It is further possible to compare and contrast these determinants with mixed results, with the various studies complementing and contradicting each other in relation to the determinants. Nebende et al (2000) examined the cost related factors as a determinant of FDI and proposed that they play a dominant role. In examination of wage costs and human capital, Nebende explains that skilled labour requiring underpriced pay is a key factor in FDI attractiveness. However Kathryn et al (1995) e xplains that there is no significant statistical relationship between exchange rates and FDI, relative to domestic investment and overall level of investment. According to research findings by Stephen et al (1997), the gross domestic product, imports, exports, infrastructure, political risk, are significant influences on the decisions of multinational businesses to invest abroad. Dunning (1977, 1979, 1988 and 1993) presented the ownership, location, and internalisation theory. In analysing the fundamentals for FDI to occur, Dunning asserted that any business should have a firm specific advantage, namely ownership, a good established location in order to mobilise the specific firm know-how (location), and an incentive to internalise external transactions (internalisation). Narula et al (1998) described how the competitiveness of multinationals is becoming increasingly about how mobile and knowledge intensive they are. Narula went on to explain that these multinationals focus extra attention to the availability and quality of assets created in varying locations. There are four notable studies that have previously been completed in the specific area of FDI in the UK, HMSO (1983), Stopford and Dunning (1983), Stopford and Turner (1985) and Young, Hood and Hamil (1988). The first of these focuses primarily on investment by multinationals; the document focuses on foreign investment in areas deemed assisted areas where the government actively encouraged foreign investment. For this reason the document is not a source for total foreign investment in the UK but only a specific area. Stopford and Dunnings work is part of a study of multinationals and allows a comparison for inward investment in specific countries and the industry areas that this investment has been focused in. Stopford and Turner is primarily an analysis on the effects of multinationals on the UK economy however it provides some data on foreign investment into the UK. Finally Young, Hood and Hamil provide various data in the form of snapshots. The reviewed literature is largely confined to several factors which determine the attraction of FDI to a host country. These factors are broadly the cost related factors, investment environment, macro economic factors, political stability/risk factors, and development strategy factor of the host country. Methodology In regards to research for my topic I shall utilise secondary research, using previous studies to compare and contrast my own research with. Saunders (2003) describes how data collected should be carefully analysed to ensure that the data is appropriate for the way in which it is being used. Ascertaining all the appropriate data for the chosen topic area would be a task too great for an individual in the timescale given. Therefore the topic shall utilise secondary research data collected from appropriate and relevant sources, to ensure a larger and higher quality dataset. The study shall make use of the data provided through the UK National Statistics Authority on FDI into the UK and the Organisation for Economic Co-operation and Development (OECD). As UK National Statistics is a UK Authority the data used from this source should reflect a true and accurate representation of the FDI market; however the latest report created in 2010 only covers the period up to and including 2008. For this reason data from OECD shall be utilised when analysing the periods up to and including quarter 3 of 2010, where required. As an independent organisation the OECD works with countries globally to promote policies that will improve the economic and social well-being of people around the world (OECD, 2011). This independent organisation has no bias towards individual countries and since data provided has been collected and published over a period of years in the same context, the data available for comparing and contrasting should be reliably and valid. These reports ar e prepared usingÂÂ  the most recent annual FDI statistics released by OECD countries and statistics for international mergers and acquisitions (MA) collected by Dealogic, which operates under a code of approved ethics. Previous studies found on FDI into the UK have thus far not covered the period known as the credit crunch. While these reports shall be useful to make comparisons against when comparing past and future, I shall be continuing my search for current studies, allowing me to make direct comparisons in a modern context. All procedures for data collection and analysis shall consider theoretical assumptions and fulfill criteria such as validity and reliability. A code of ethics ensuring that data and other research used is gained from credible sources ensuring that data was attained in an appropriate manner for this study to utilize, and not gained by violating any codes by which the information was held under. Evaluation of Work Undertaken The aspect of the topic chosen has remained the same since the beginning; however after further research into the subject area changes have been made. The reasons for these changes have been to improve the project and make it a more coherent and higher quality study. Several areas of the topic proved to be larger than anticipated and therefore to include these areas in detail would prove too time consuming and push the document over the word limit. For these reason I have scaled down the project slightly in order to benefit it. I have found whilst researching that although there is much information on how FDI affects countries, there are few studies that address the issue in the same context as the one I have proposed. Whilst this proves to benefit my study in terms of being a new piece of research, it does cause issues when trying to compare studies, practically studies carried out in the UK, as there are few. Literature Review Methodology Analysis Draft 75% Completed. Research has been conducted identifying key issues within the reporting area. The main ideas have been written up and will shortly be ready to be reviewed. Clearly defined. Identified the main threats to validity and generalisation of the project and implementation of strategies to overcome issues. 60% complete. Data sets located and analysed. Write up of this chapter to be completed shortly. First chapters 75% complete, including: literature review and methodology. Ready for review shortly. Future Timeline to Complete Project Week (Academic Weeks Only) 15 16 17 18 19 20 21 22 23 24 25 26 27 Literature Research ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Process Data ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Analyse Data ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Hand in Progress Report ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Complete Chapters ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Draft Final Report ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Submit Draft ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Revise Draft ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Print and Bind Final Report ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Submit Final Report ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   ÂÂ   Â