Evaluate the factors leading to the rise of international trade

Assignment Brief

The courseware should contain the following three main parts, plus a brief introduction and conclusion.

1. Theories on FDI (40%)
2. Costs and benefit of FDI (general discussions) (30%)
3. Trend analysis of FDI data for your chosen country or countries with reference to world trend (30%)

Proper citation is expected. See: http://www.citethemrightonline.com.

Assignment type: Report

• Report (30%): to be submitted online by the end of week 24 (Friday, April 3rd) on the topic below, assessing learning outcomes 5 – 10.

Topic:

Although historically most FDI has been directed to developed nations, FDI into developing nations has increased significantly over past 20 years. Discuss main theories explaining FDI and examine costs and benefits of FDI using FDI data from World Bank database for a country of your choice. (About 3000 words).

World Bank: http://www.worldbank.org/ . Go to “Data” section, search for “Foreign direct investment, net inflows (% of GDP)” using the “Find an indicator” window. It will direct you to FDI data for most countries in the world. You choose one country of your interest.

The courseware should contain the following three main parts: Theories of FDI, Costs and benefits of FDI, Trend Analysis of FDI data of country of choice, plus a brief introduction and conclusion.

1. Introduction
2. Theories on FDI
3. Costs and benefit of FDI (general discussions)
4. Trend analysis of FDI data for your chosen country or countries with reference to world trend.
5. Conclusion

Learning Outcomes

Knowledge

On completion of this module the successful students will be able to:

1. evaluate the factors leading to the rise of international trade;
2. explain trade theories and assess the pros and cons of free trade and protectionism;
3. explain and assess how the world trading system works;
4. evaluate the welfare effects of economic integration & regional trading blocs;
5. explain FDI theories and analyse impacts on home and host countries;
6. critique on firm strategies, structure and business operations in response to the changing world trade conditions.

Skills

This module will call for the successful student to be able to:

1. conduct research on trade figures and interpret the findings
2. evaluate information from news articles or magazines to find examples of how individual countries are adopting (or violating) their free-trade agreements.
3. present their research findings clearly in written form
4. formulate possible business strategies in response to a particular world trade environment

Sample Answer

Foreign Direct Investment: Theories, Costs and Benefits, and Trend Analysis for Vietnam

Introduction

Foreign Direct Investment (FDI) has emerged as a key driver of economic growth and globalisation. Historically dominated by capital flows into developed countries, the last two decades have witnessed a significant increase in FDI into developing nations, reshaping global economic dynamics. This report explores the main theories underpinning FDI, critically assesses its general costs and benefits, and provides a trend analysis of FDI inflows into Vietnam compared with global trends. The data is primarily sourced from the World Bank and academic literature. Vietnam was chosen due to its rapid transition from a low-income to a middle-income economy, facilitated largely by FDI.

Theories on FDI

Several theories explain the motivations and mechanisms underlying FDI. The key models include:

Dunning’s Eclectic Paradigm (OLI Framework)

Dunning (1988) proposed the OLI framework, which posits that FDI is driven by three sets of advantages:

• Ownership advantages (O): These include firm-specific assets such as technology, brand reputation, and managerial expertise.

• Location advantages (L): These refer to host country attributes such as natural resources, market size, cost structures, and political stability.

• Internalisation advantages (I): This suggests that firms may internalise operations in foreign markets to reduce transaction costs, avoid tariffs, and protect intellectual property.

The OLI model remains a dominant explanation of why firms invest abroad rather than exporting or licensing.

Market Imperfections Theory

This theory, proposed by Hymer (1976), argues that FDI occurs due to imperfections in markets, such as barriers to entry or differences in taxation and regulation. Firms exploit these imperfections to gain monopolistic or oligopolistic advantages.

Product Life Cycle Theory

Vernon’s (1966) product life cycle model suggests that firms internationalise as products mature. Initially, products are developed and produced in the home country; as they mature and demand grows abroad, production is shifted to foreign markets through FDI.

Internalisation Theory

According to Buckley and Casson (1976), firms prefer FDI over licensing or franchising to maintain control over proprietary knowledge, reduce risks, and achieve economies of scale.

Continued...