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current account of the US balance of payments has improved somewhat because many Japanese companies are now supplying the US market from production facilites in the US, as opposed deficit in Japan. For insomuch as this has reduced the need to finance a current account deficit by asset sales to foreigners, the US has benefited.

 

(2) potential benefit arises when the MNE uses a foreign subsidiary to export goods and services to other countries.

 

Host Country Effects: Costs

 

Three main costs of inward FDI that give rise to concern in host countries are: the possible adverse effects of FDI on competition within the host nation, adverse effects on the balance of payments and the perceived loss of national sovereignty and autonomy.

 

Adverse effect on competition - Host governments sometimes worry that the subsidiaries of foreign MNEs operating in their country may have greater economic power than indigenous competitors because they may be part of a larger international organizations. As such, the foreign MNE may be able to draw on funds generated elsewhere to subsidize its costs in the host market, which could drive indigenous out of business and allow the firm to monopolize the market. Once the market was monopolized, the foreign MNE could raise prices above those that would prevail in competitive markets, with harmful effects on the economic welfare of the host nation. This concern tends to be greater in countries that have few large firms of their own that can compete with the subsidiaries of foreign MNEs.

 

Adverse Effect on the Balance of Payment - The possible adverse effects of FDI on a host country’s balance of payment position are twofold.

 

(1) To offset the initial capital inflow that comes with FDI must be the subsequent outflow of income as the foreign subsidiary repatriates earnings to its parent company. Such outflows show up as a debeit on the current account of the balance of payments.

 

(2) When a foreign subsidiary imports a substantial number of its inputs from abroad, which also results in a debit on the current account of the host’s country’s balance of payments. One of the criticisms leveled against Japanese-owned auto assembly operations in the US, for instance, was that they imported many components parts from Japan, reducing the favourable impact of this FDI on the current account of the US balance of payment position. The Japanese auto companies responded by pledging to purchase 75% of their component parts from US-based manufacturers (but not necessarily US-owned manufacturers).

 

3. National Sovereignty and Autonomy- many host countries worry that FDI is accompanied by loss of economic independence. Key decisions t本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。