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Question:

Evaluate the Cost and Benefit of Foreign Direct Investment and also Write Political,Economic and Legal System of this Assignment.
 
 

Answer:

Introduction

Globalization and foreign direct investment is very critical terms which are in escapable as tools upon which US economy depends upon. In this report a complete study has been prepared over the cost and benefit analysis of foreign direct investment in USA economy. This report has been prepared to divulge how foreign direct investment has been providing benefits for the growth of USA economy. Foreign direct investment is a controversial issue in international economy around the globe. It is evaluated that how foreign direct investment has been playing a pivotal role in economy of USA in collection of foreign exchange. In the starting of this report changes in globalization has been portrayed in context with foreign direct investment in USA economy. Apart from that, Political, legal and economical factors of USA economy have been taken into consideration for evaluating the cost and benefits of foreign direct investment in determined approach. In the end of this report nexus has been established between political, economical and legal factor of foreign direct investment in USA economy (Jayet & Marchal, 2016).

 

Political System

Foreign direct investment is amount of investment made by foreign investors from the outside of selected country. It is the system which establishes relation between how formal and informal institutions by which government generate policies and rules to demand and assistance of general public. Total democracy has been followed by USA in its political system. Economy of USA is called developed economy and in order to increase its GDP rate Government of USA has opened its economy for the foreign investors (Hanemann,  & Gao, 2014). However, allowing FDI in USA economy will results into availability of funds for USA countries but it will eventually results into increment of control of outsiders in economy of USA It is further observed that Political stability of USA is also very effective which provides free flow of Foreign investment in USA country.  There is several trade agreements, participation in international treaties and other regional blocks have been prepared by USA for encouraging foreign direct investment. These impacts have divulged USA has made its economy a single global order mostly denominated by democracies and free market for foreign direct investment. Political stability in USA could be reflected with the help of given graph (Wei, Zheng, Liu, & Lu, 2014).

This graph depicts that USA has been maintaining stable political system. However, co- integration analysis between foreign direct investment and political overview of USA depicts that there exist a positive correlation between two factors. Government of USA has opened up its economy 100% for FDI purpose and allowing foreign investors to make investment in USA economy (Pan,  Teng, Supapol, Lu, Huang, & Wang, 2014). Therefore, USA has maintained its political stability throughout the time in order to attract foreign investment or more capital.  Political system has been playing effective role in attracting FDI in USA. If country faces problem in their political system then it would result into emergence of situation when country would have no investment from foreign investors. Therefore it is evaluated that USA being developed economy has provided that country has been raising prepared their political system open and allowed foreign investors to make investment in determined approach (Lamster,  (2017).

 

Legal System

Legal system is consisted with all the policies, rules and regulation of the country. Foreign direct investment in USA is result of globalization. Economy of USA has reflected that legal system accompanied with laws, regulation and other rules enforceable on globalization has provided that company has allowed foreign investors to invest their money in USA capital market without any restriction. However, there are several sectors in which government of USA has imposed sectorals cap in determined approach. It is further observed that USA economy has widely changed its legal system and reduced its taxation, tariff on several factors. Foreign investors who are investing money in USA economy are aiding with leaving government support and least regulated policies of governments. Investment in intellectual property by foreign investors is encouraged by government parties in USA by abolishing of licensing in several fields, allowing foreign investment in small industries and other niche market, new trade policies and dismantling price control. Another major concern which has been seen in USA economy is related with corruption in legal system (Kim, & Zychowicz, 2015). In order to attract more FDI and making countries risk free for the foreign investors USA government has prepared agenda to eradicate corruption from their legal system. Legal system of USA has encouraged several investors to make investment in selected sectors. However, there are other parts of economy where FDI by the USA government is not allowed such as hospitals, education and ammunition industry.  Government of USA has been making effective efforts to attract more foreign investment by making liberal policies and making changes in their existing policies such as adoption of international policies and entering into regional blocks with countries (Perri & Peruffo, 2016).

Economic System

United state has mixed economy. It is the system which is accompanied with laws and regulation that determine how resources in USA are being distributed for producing goods and service. U.S. economy is made of individual people, business and other factors as per the certain level of requirement of economy. Economical system of USA in context with FDI polices and regulation is open and allows foreign investors to invest their money in USA economy (Li, et al. 2016).

 


However, there is several cost and benefit analysis which have been seen such as allowing FDI from foreign investors results in loss of control in several assets and resources of USA, incoming of notable entrepreneur and establishment of several big multinational companies around the globe. However, it is further observed that GDP of USA is 16.77 trillion USD in which around 15% partition is contributed by FDI and generated gross national income of country results into around 16.99 trillion USD due to wide level of investment of entity from outside of country. The main loss which has been observed is that stocks and goods offered by multinational company provide high competition to domestic business man those results into loss of their business functions (Boly, Coniglio, Prota, & Seric, 2015). However, after making cost benefit analysis it would be concluded that FDI in USA results into several benefits such as it increase employment, arrangement of capital and other benefits with less loss rendering activities. The main benefits of FDI could be reflected that People in USA are provided products and services in their own country as per their demand and need in determined approach (Gopinath, Helpman, & Rogoff, (2014).

 

Conclusion

In this report it is observed that FDI is very essential for the development of particular economy. It is evaluated that FDI is influenced by mostly three factors of economy namely political, legal and economical factors. In order to identity the true benefits of FDI in country it is required to understand how these systems are influencing FDI. It is easy to say that country getting high FDI would results into development of its economy in short span of time. It could be reflected with the developed countries FDI policies and regulations. However, there are several benefits and losses which are associated with FDI in particular economy so proper due diligence need to be taken care while forming FDI policies by country. In the end it would be concluded that each and every organization should encourage FDI policies for the effectiveness of their international relation with other countries.

 

References:

Boly, A., Coniglio, N. D., Prota, F., & Seric, A. (2015). Which domestic firms benefit from FDI? Evidence from selected African countries. Development Policy Review, 33(5), 615-636.

Gopinath, G., Helpman, E., & Rogoff, K. (Eds.). (2014). Handbook of international economics (Vol. 4). Elsevier.

Hanemann, T., & Gao, C. (2014). Chinese FDI in the US: 2013 Recap and 2014 Outlook. Cross Border Investment. https://www. uschina. org/sites/default/files/RHG_XBI_ChineseInvestmentInUS_2013_ Recap_6Jan2014. pdf. New York: Rhodium Group, LLC. January, 6.

Jayet, H., & Marchal, L. (2016). Migration and FDI: Reconciling the standard trade theory with empirical evidence. Economic Modelling, 59, 46-66.

Kim, W. S., Lyn, E. O., & Zychowicz, E. J. (2015). Is the source of FDI important to emerging market economies? Evidence from Japanese and US FDI.

Lamster, I. B. (2017). Implications of the 2016 FDI Policy Statements. International Dental Journal, 67(1), 3-3.

Li, L., Wang, H., Jin, H., Cao, Z., Feng, N., Zhao, Y., ... & Yan, F. (2016). Interferon-inducible GTPase: a novel viral response protein involved in rabies virus infection. Archives of virology, 161(5), 1285-1293.

Pan, Y., Teng, L., Supapol, A. B., Lu, X., Huang, D., & Wang, Z. (2014). Firms’ FDI ownership: The influence of government ownership and legislative connections. Journal of International Business Studies, 45(8), 1029-1043.

Perri, A., & Peruffo, E. (2016). Knowledge spillovers from FDI: a critical review from the international business perspective. International Journal of Management Reviews, 18(1), 3-27.

Wei, Y., Zheng, N., Liu, X., & Lu, J. (2014). Expanding to outward foreign direct investment or not? A multi-dimensional analysis of entry mode transformation of Chinese private exporting firms. International Business Review, 23(2), 356-370.

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