Economics Essay Example | Topics and Well Written Essays - 4000 words - 1

Economics - Essay Example The emergence of many studies on Chinas’ FDI shows the importance of FDIs to the Chinese economy. The importance of FDI for China’s economy has been demonstrated by empirical research (Kueh, 1992; Zhan, 1993). At the micro level, studies examine technology transfer by multinational enterprises (MNEs) and linkages between foreign subsidiaries and Chinese local firms (Li and Yeung, 1999). Previous studies within these dimensions were generally qualitative and support the view that the entry and operation of MNEs promote the development of Chinese indigenous firms. Research on Foreign Direct Investment (FDI) in the past has attracted much attention from the field of international finance and international marketing. FDI refers to a situation where, a firm invests directly in facilities to produce or market product in another country (Hill 2007:238, Sumulong et al., 2003, Buckley 2004, Shen et al., 2006). Once a corporation or firm undertakes a foreign direct investment, it becomes a Multinational Enterprise (MNE). Examples of foreign direct investment initiatives include: CEMEX a Mexican corporation operating in more than fifty countries; British petroleum, Texaco, ASDA, TESCO (Hill 2007). Hill (2007) contends that FDI takes on two main forms: Greenfield investment, mergers and acquisitions. Hill (2007) went further and argues that, in Greenfield investment, the firm in question establishes a new operation in a foreign country while the later involves acquiring or merging with an existing firm in the country. Acquisition however is usually hostile, because this is usually done against the wish of management (e.g. CEMEX’s acquisition of RMC of Britain and Southland in the United States (Hill 2007, Buckley 2004). In the years that follow after the Second World War, trade and investment have become increasingly intertwined. Within the first few decades after the war, most countries