Multinationals and foreign direct investment
| English | 中文 | Pinyin |
|---|---|---|
| profit repatriation/ˈprɒfɪt rɪˌpætrɪˈeɪʃn/ | 利润汇回 | lì rùn huì huí |
| foreign direct investment/ˈfɒrən daɪˈrekt ɪnˈvestmənt/ | 外国直接投资 | wài guó zhí jiē tóu zī |
A decision you can investigate
- A foreign company opens a factory and trains local technicians. A nearby shop merely buys foreign goods.
- Owning productive activity abroad differs from trading with an overseas supplier.
Build the explanation
- An MNC controls productive operations in more than one country. FDI is investment establishing a lasting interest and influence in an enterprise abroad, rather than just purchasing its products.
- Firms may seek customers, natural resources, cheaper materials, scale economies and lower transport/communication costs. Host economies can gain jobs, infrastructure, skills, capital and taxes, but may face environmental damage, tax avoidance and profits moved abroad.
Work through the evidence
- A fictional foreign investor funds machinery worth 2 million yuan and employs 40 local workers. Annual profit is 300000; it reinvests 100000 locally and sends 200000 to its overseas owners.
- The machinery and jobs are potential host benefits. The 200000 profit repatriation 利润汇回 is an external income flow, not proof that the entire investment has been harmful. Compare wages, taxes, training and environmental effects too.
How much fictional profit is reinvested locally?
The case separates reinvestment from repatriation.
Test the limits
- Job quantity alone says little about pay, safety or stability. Tax contribution depends on rules, compliance and incentives, not the mere existence of the factory.
- Imported components can limit links with domestic suppliers. A credible judgement compares the investment with the likely alternative and uses actual evidence; the fictional figures are not a real-company study.
Which identifies productive FDI more directly?
Control of overseas enterprise activity distinguishes the investment.
Profit repatriation alone proves that an investment creates no host-country benefit.
Jobs, capital, skills and tax receipts can coexist with repatriation.
Apply and explain your answer
- Why is buying an imported machine for a shop not by itself proof that the shop is an MNC?
- The shop has not thereby established controlled productive operations in another country.
What evidence helps judge host-country benefits?
Benefits and costs involve several local outcomes.
Use the terms precisely
- foreign direct investment 外国直接投资: Investment creating a lasting interest and influence in an enterprise abroad.
- profit repatriation: Moving profits from overseas activity back to owners in another country.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
A fictional foreign investor funds machinery worth 2 million yuan and employs 40 local workers. Annual profit is 300000; it reinvests 100000 locally and sends 200000 to its overseas owners. The machinery and jobs are potential host benefits. The 200000 profit repatriation is an external income flow, not proof that the entire investment has been harmful. Compare wages, taxes, training and environmental effects too.
Job quantity alone says little about pay, safety or stability. Tax contribution depends on rules, compliance and incentives, not the mere existence of the factory. Imported components can limit links with domestic suppliers. A credible judgement compares the investment with the likely alternative and uses actual evidence; the fictional figures are not a real-company study.
An MNC controls productive operations in more than one country. FDI is investment establishing a lasting interest and influence in an enterprise abroad, rather than just purchasing its products.