Evaluate the statement that Foreign Direct Investment is the defining Essay

Evaluate the statement that Foreign Direct Investment is the defining activity of Multi - National Companies - Essay Example The multinational corporations have tapped the opportunities of tax incentives, cheap labour, technological leverage, cost benefits and made good use of the comparative advantage of the host economies to increase their production and profitability. There are major theories that explain the activities of the multinational corporations to engage in foreign direct investments. While there is a wide belief that multinational companies have engaged in FDI due to the fluctuation of interest rates, it has later been theorized that the activities of foreign direct investments by the MNCs are not only guided by profitability and exports but also focus on keeping control over their productions in the overseas market which could be evidenced by several property rights executed by the MNCs. The activities of the multinational corporations in engaging into foreign direct investments could be justified by the relative advantage of Foreign Direct Investments over exporting of goods and services. .. . ious fields in which globalization has influenced the economies all over the world are in the fields of trade and business transactions, investments in cross-border opportunities, movement of people across geographical boundaries and the transfer of knowledge from one country to another. Globalization had huge impacts on the activities of international trade (Krugman and Obstfeld, 2009, p.48). Due to the opening up of barriers of the economy, the new avenues for investments opened up for the companies that operate in the international stage. The ability of one country top produce goods and services over the other countries led to the comparative advantage of that country over its trading partner. These opportunities were explored by the corporations who had the potential to expand their business in the overseas markets and take advantage of the resources that were available at a less cost leading to comparative advantage. This led to the exchange of capital, goods and services, techn ologies across the international borders due to which commercial trade and transactions cropped up. The trading activities were funded by the multinational corporations who were ready to invest in more than one country and execute trading activities to attain absolute advantage over other market players. The globalization of trade was fuelled by the rise of multinational companies and trading activities flourished as it contributed to the growth of GDP of the economies all over world. Thus globalization laid the platform for the rise of multinational corporations whose activities of investments, production of goods and services led to the increase of trade all over the world. MNC and FDI goes together The multinational corporations are business entities that have presence in more than one