You will prepare and submit a term paper on Why Do Companies Decide to Invest Overseas and to Go Multinational. Your paper should be a minimum of 2000 words in length.

You will prepare and submit a term paper on Why Do Companies Decide to Invest Overseas and to Go Multinational. Your paper should be a minimum of 2000 words in length. Jepson (2002) explains the unprecedented flow of foreign direct investments during the last two decades has made spectacular contributions to the economic restoration of Europe and to the industrialization of many of the developing countries. Spectacular, too, have been the returns realized by the international corporations that undertook the investments.

However, if we examine the conditions a host country must satisfy if it is to continue attracting foreign investments, quite distinct limits to a country’s ability to keep its doors open to the foreign investor become apparent. A few basic facts will make the point. (McLaughlin Mitchell 2006).

Barry (2002) defines that the most fundamental fact is this: A country’s capacity to absorb foreign direct capital inflows is ultimately limited by its ability to service that capital, in terms of current account debits (e.g., dividends) and eventual repatriation of principal.

In turn, a country’s ability to service the stock of foreign-owned capital is tied to its ability to generate sufficiently large payments surpluses on other current account items. (Relying on a positive balance in the capital accounts is just putting off the day of reckoning.) These relationships are obviously more easily stated in the aggregate than conclusively sorted out in detail. The “current account” of a country’s balance of payments has many components, and “foreign-exchange availabilities” come from many sources.

And there are the well-known leads and lags in the balance of payments effects of foreign direct investment: Primary capital inflows are followed, before giving rise to dividend outflows, by initially high rates of earnings re-injection (which, of course, raise the host country’s future liabilities proportionately).

The Other Side of the Coin

These arguments seem perfectly true for most foreign direct investments looked at individually. Barry (2002) goes further and says that the total effects of rapidly rising inflows of direct capital from abroad are causing concern too many host countries—not entirely without reason.

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