Trade and foreign direct investment Essay
The extent to which the growth of trade and FDI has influenced growth and economic development in the Asia Pacific can be said to have grown from the early nineties and taken a noticeable trend towards the end of the twentieth century. This can be attributed to the effects of the cold war during which many countries in the Asian Pacific, especially the communist and socialist countries, were keen on the kind of trade that would benefit the common man and did not necessarily do it for the gain of the country’s economy. Foreign direct investment was thus minimal due to suspicion.
Trade as a means of obtaining goods from other countries in the region was a main cause of growth from the onset as most of the countries relied on each other for goods they did not produce within their boundaries. Towards the close of the century, the growth experienced was exponential. This is due to the fact that mergers, acquisitions began to take root in the region. Most of the investments took place in China as it was a rapidly expanding economy more than any other country in the region. The collapse of the Soviet Union had also succeeded
Need essay sample on "Trade and foreign direct investment"? We will write a custom essay sample specifically for you for only $ 13.90/page
Therefore, the growth of trade experienced in the early twentieth century was placed at 8% and grew to about 40% indicating that they were directly responsible for the growth of the economies. Important factors that promote rapid economic growth The end of the twentieth century brought with it more development than earlier thought. The dependence on goods from the global market went down a great deal in comparison to that of the regional market. This meant that more and more economies had attained the capacities to get the goods that they needed from within the region.
This does not mean that global trade declined at all. For instance, Japan, being the biggest Asian economy at the end of the twentieth century, had started MNEs in most of the countries in the region especially in the East of Asia. Countries like Thailand, Australia, Malaysia, Indonesia, Singapore and Philippines. This it augmented with the use of incentives. The region has otherwise viewed FDI as a pivotal provider of capital in the development of infrastructure which serves to help increase the ability to reach more and more resources (Cho, 1997). Japan and the US form a key front for the development of the region.
Not only they are important in the big MNEs but also they provide policies that regulate and protect the interests of the people in the region. These policies protect the people from such practises as human trafficking for labour and so on. The policies offer military protection to the private sectors. Japan is responsible for about thirty percent of the trade in the region. This is due to the fact that it trades mainly in the region making it offer about 43% of the trade in the region. China has become one of the biggest trade partners in the region in the recent past.
This does not however imply that it has overtaken Japan in the trade. On the other hand, US has for some time been a big FDI in the region. In as much as it is not in good books with some of the countries, this has not hindered its investment in areas like Hong Kong and Thailand (Von Feigenblatt, 2010). The role of MNEs in the Asia Pacific cannot be understated. They are good for the investment of capital in the economies. They employ a huge workforce of both skilled and semi-skilled labour. This is a sure way of keeping the standards of living at an improving trend.
In effect, they contribute immensely to the growth of the region’s GDP. Within the region, the investments have enabled fragmentation of regional production via the growth of large production network and integrated value chains. They have also provided the population with services such as corporate responsibility so that the environment and well-being of the people is catered for. The huge investment in the region has led to the development of competition amongst competing providers. This ensures the growth of high quality goods and services.
It also keeps the prices of goods and services at a healthy minimal so that there is no monopoly by one section of the providers (Lara, 2008). The role of MNEs in the Asia Pacific has been much defined up to now. The MNEs have been known to introduce new technologies and enhance the education levels through various requirements for employments. The technologies introduced favour the development of industries especially in the production circles. It has been observed that the textile industry in Hong Kong has been a very big beneficiary of technologically advanced machines.
This was done by the Chinese government in lieu to their venture into the Hong Kong textile industry. The new technology serves to pump an impetus into production by increasing efficiency. This means that the new technology has enabled production speeds to be faster than before. Therefore, not only does the technology increase speeds of production but they also increase the availability of goods in the market due to faster production in effect, standards of living are improved through the better technological advancements.
The second angle through which we can look at the role of MNEs is the reduction of monopoly within the region. When many MNEs venture into the region, monopoly by certain forces is usually regulated therefore in effect supplementing the already established markets with another of the same goods. This means that variety in each section is also experienced. These MNEs are a good point for the provision of employment to the citizenry of the region. MNEs usually require that a certain quarter of their staff is left to the natives.
As such, the government policy on establishment of MNEs within their boundaries ensures that employment levels are improved by the players in the industry. This affects both the skilled and the semi-skilled. A multinational corporation may be able to come into the country with expatriates but government policy will ensure that it also employs some of the native experts and semi-skilled population into their companies. The GDP will therefore benefit through the many channels available to the country. For instance, apart from paying taxes, the multinationals contribute to the income of the natives employed.
Another role of MNEs is to strengthen the economic ties that the region enjoys within itself. In as much as their policies might not match, they have common interests which are served by the multinationals (Wang and Liu, 2002). Managerial knowledge is transferred through various processes. On of them is through the training of employed natives who are taken through rigorous trainings to enable them meet the requirements and capacities to work for the organizations. For instance, when the MNEs come in to the countries with new technology, they will have to train the native employed to handle the machines.
This will in turn transfer the knowledge to the people. On managerial knowledge, the natives experience these at the higher management levels. China has been known to utilize a huge chunk of it expatriates in any of their multinational ventures. These are none the less restricted to the engineers and technological experts. This implies that they will have to complement their share of managers with the natives of the country into which they are launching their multinational ventures. As such, they employ mostly middle-level managers who are also trained.
Therefore, the native managers acquire knowledge through association with the practises of the company that they work for. In essence, managerial knowledge is passed from the FDI countries to the natives of the recipient country. At other sectors, corporate social responsibility makes the FDIs fund education for natives. For instance, Japan as a country sponsors students from the Asia Pacific region and other continents like Africa to join colleges in their county for training after which they transfer them to work for Japanese organizations in their native regions.
This includes training in scientific fields of technology and engineering and other business management courses. This means that the FDI helps improve the overall knowledge of the native country at which the establishment is developed. In turn this also helps transfer knowledge to the other native industries as they also borrow from what they see in the FDIs and practise the acquired knowledge (Saggi, 2002). The role of China in the future is monumental. Its capacity to grow has not been matched by any other country worldwide and as such this has paved way for exponential growth on its economy.
This means that the GDP of China has been on a positive growth for a very long time spanning over 25yrs. This is a simple indictor that they are fast acquiring the developed nation status. The only problem that they have experienced is that their per capita income has stayed low at $1000 as at the onset of the new millennium. This does not match that of the developed nations. None the less, the stabilization of its dynamic growth will ensure that it attains more trading partners. A stable growth is important in ensuring that the economy reaches the standards required of developed nations.
This in turn will be used to keep the technological advancement at a healthy rate. The growth experienced in China has been largely attributed to the borrowing of technologies from other developed and developing nations. The key to more growth now lies in reducing this reliance so that it provides for the other countries in the region with the much needed inventions and innovation. With the current rates of growth in the Chinese economy, this can be catered for to help provide for necessary inventions for the region (Lin, 2004).
The Asian Pacific nations that dominate in the MNE are US, Japan and China. The investments by the three nations combined can surpass that of every other nation in the world. While the US has been keen in investing in and out of the region just like Japan, China has found the member countries of the region and Africa as a continent more appropriate for its kind of expansion. Not only does it source for resources in the mentioned regions but it also provides the current highest number of MNEs that deal in infrastructural development like road construction and engineering.
The other forms of MNEs are those that deal in the supply of common consumer goods and their manufacture. The US and Japan on the other hand have been instrumental in the all-round development industries of many countries. Their multinationals also provide aid where necessary. National business systems are usually developed by the governments of a country. The policies and legislations that affect them might be harmful to the businesses of the countries intending to develop MNEs within the country.
The first step that the international community has taken is to call on governments in the region to develop policies that would ensure such national establishments acquire an international standard and in effect outlook. This would go a long way in keeping the competition offered by the MNEs at a healthy level so that indigenous establishments are not exploited and exposed to harsh competitions which in turn might lead to start of tariffs to curtail international dominance (Edwards and Kuruvilla, 2005).