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Question 1:
Drivers of FDI
Foreign direct investment (FDI) is driven by multiple and complex factors. The most obvious factor is economics. Companies invest globally to take advantage of cheap labour, to gain access to valuable natural resources, or to establish production facilities in advantageous locations. From the late 1980s onwards, financial globalization made it increasingly easier for companies to move capital and investment around the world.
Removal of barriers to foreign investments is an important factor that has driven the global surge in FDI. Governments of both the recipient and investing countries have implemented pro-FDI policies and agreements to entice and encourage FDI. Policies such as free trade agreements, deregulation of industries, tax incentives, and technology transfer agreements have all served to make FDI flows easier and more attractive.
In addition to economic and policy factors, global expansion by firms can also be driven by market-based motivations. Companies are increasingly motivated to invest abroad in order to access new customers, technologies, or resources. With the rise of advanced communication and transportation technologies, companies have been able to enter foreign markets in order to gain a competitive advantage. For example, China's growing middle-class, improved access to transportation systems, and the growth of the internet, have made it increasingly attractive for companies to expand operations into China.
Impacts of FDI
The impact of FDI on both the investing and recipient countries can be positive or negative, depending on the context and the particular industry or sector. On the one hand, it can lead to the creation of jobs and economic growth, and provide financing for long-term economic development (Gos, Yap, & Hefeker, 2019). FDI also brings with it new technologies, management and production techniques, business processes, and intellectual property, as well as capital investment, which can all lead to increased productivity and economic efficiency. In addition, FDI can open new markets and create export opportunities..
On the other hand, FDI can also lead to a number of negative impacts. It has been argued that in many cases, FDI can lead to a displacement of domestic businesses that are unable to compete with the new foreign players. In some instances, FDI may also lead to large-scale environmental degradation due to the absence of effective environmental regulations.
Question 2:
Political risk can be defined as a set of risks that are associated with political, economic, and regulatory environments of different countries, which may impact a company’s ability to effectively and profitably operate in a...