Foreign Direct Investment---Economics Essay Example | Topics and Well Written Essays - 2000 words

Foreign Direct Investment---Economics - Essay Example What exactly are foreign direct investments, and why have they increased so steadily What factors make foreign direct investments such a popular global occurrence A foreign direct investment, as the name states, involves corporations who invest long term overseas. There are four types of FDI's for business corporations to choose from. The most commonly preferred for more corporations are mergers and acquisitions. They involve a transfer of assets from the originating corporation to the one which is foreign based. (Wikipedia, 2006). Greenfield investments are investments or expansions for a new corporation. There are two forms of vertical foreign direct investments which involve backward vertical FDI and forward vertical FDI. Backward vertical FDI involves an out of the country business which provides resources/assets to a domestic business. Forward vertical FDI involves a business abroad that sells the amount produced of a business's domestic production(s). A.T. Kearney Inc. is a global management consulting firm that is an active member of the Global Business Policy Council. This council aids and advises head executives on geopolitics, macroeconomics, technological changes, and macroeconomics worldwide (A.T. Kearney, 2006, p.1). A.T. Kearney spent over seven years surveying numerous head executives from over one thousand corporations worldwide for their opinions on future FDI growth and objectives. The companies and their executives that were surveyed comprise seventy percent of the cumulative FDI. In December 2005, A.T. Kearny published their findings in their FDI Confidence Index. The survey was comprised of sixty-eight countries that contribute ninety percent of the global FDI (A.T. Kearney, 2006, p. 2). They selected the top twenty-five countries according to their FDI confidence. These countries were ranked by a score given from zero to three. Scores closer to three was given to those countries with the highest amount of FDI conf idence. For example, China received the highest FDI confidence rating for a score of 2.197. Why would China be interested in foreign direct investments A country such as China is interested in FDI's to improve the economic state of its own country based on the numerous benefits of foreign enterprise investing. There are many advantages and attractions for foreign markets to invest in one of the worlds largest and growing markets. China's population was estimated in 2005 at over 1.3 billion people. It holds a large share of twenty percent of the world's total population estimated at 6.5 billion people. (Prasad, Eswar & Wei, Shang Jin,2005). Many multinational corporations will choose to invest in densely populated countries such as China. Companies will choose China because their own country lacks a sufficient labor supply. The cost of China's labor force is dramatically low in comparison to other surrounding Asian countries. Many foreign direct investors have found this cost effective and have created and brought millions of jobs to China. The US, a country which owes the m ajority of its yearly population growth from immigration, would find China to be a valuable source of manpower as well as an ever increasing and developing economy. On the other hand, the population growth has become so overwhelming high for China that the government has had to