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Foreign direct investment Essay

During the period between 2002 and 2005 the amount of Foreign Direct Investments attracted into the U. S. economy was estimated at the level of 23,139 FDI projects ($1. 22 trillion). These investments have also resulted in creation of 1. 55 million jobs. The beginning of 2005 has though displayed some decline in the number of FDI projects; this decline has mainly touched food industry, tobacco, chemicals and plastics & rubber industries. (Razin, 2007) Hotel industry is not mentioned in the list of industries facing the risks of FDI decline. The USA, however, keeps its position of the world leading FDI donor.

The stated decline of the FDI projects has been experienced by all world countries through the period of 2005-2006 and is not caused by any inner reasons generated by the U. S. market only. Table 4. The volume of FDI project inflows into the U. S. economy. (White, 2006) However, in admitting the reasons of FDI decline being caused globally, there is still high level of concern in relation to the future trends in FDI development. (Grosse, 2006) The fact of the amount of FDI projects gradually decreasing is a serious sign to be considered by Pakistani investors prior

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to creating a hotel in the USA.

The reasons of decline, which are not seen at the surface, may later seriously impact the hotel’s economic performance. However, with the hotel industry rapidly developing, it is possible to predict that the level of FDI projects in this very economic sector will be sustained at constantly high level in the nearest decade. Political economy of FDI As previously stated, the major instrument of attracting investments and making the American market attractive for the potential foreign investors is in liberalizing the country’s economy and making it open, transparent and fair towards those who want to generate their incomes through the U. S. economic engines.

Other essential policy factors, positively impacting the level of FDI, include: – proximity to markets and customers; – large potential for domestic market growth; – availability of the skilled and qualified workforce; – well developed infrastructure and logistics; – taxation incentives for foreign investments; – government support. (Driffield, 2007) The importance of FDI for the U. S. economy is also supported by the fact, that on May 10th, 2007 the White House has issued a new policy statement, named ‘Open Economies’. (OCO Consulting, 2007) It is expected, that the level of FDI will increase 50-55%.

(Razin, 2007). Pic. 3. Evaluation of the major factors, positively impacting the level of the FDI in the U. S. (10-points scale). (Driffield, 2007) The exact FDI potential cannot be estimated in the light of the growing terrorist risks and possible economic slowdown in the U. S. These political and economic risks have already been identified in the SWOT analysis of the U. S. hotel industry and should be accounted by potential Pakistani investors. The aim of this document is to highlight the new initiative of attracting additional investments and clarifying the importance of FDI to the embassies’ staff abroad.

While the U. S. diplomatic representatives were traditionally concentrated on resolving the issues of US export promotion and the related policy tasks, now they will also ‘focus on the attraction of foreign direct investment projects to the USA’. (OCO Consulting, 2007) It implies that the decision of building hotel in the U. S. , with the investments made by Pakistani businessmen, will be performed in the atmosphere of attractive economic conditions, strong infrastructure and governmental support. In this case the risk of economic losses, which may be caused by both political and economic risks, can be minimized.

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