Chapter 9: Role of foreign direct investment (FDI) in ASEAN
We have seen previously that foreign direct investment (FDI) in the form of MNCs has played a significant role in ASEAN5 economic development by providing the required capital, technology and access to the external markets through their international marketing networks. This chapter will discuss in more detail the benefits and costs associated with FDI, and the policies adopted by the ASEAN5 countries to maximize the benefits of FDI and counteract its potential negative consequences. 9.1 FOREIGN DIRECT INVESTMENT Foreign direct investment is differentiated from other forms of investment by the former’s ability to have a direct control over the invested capital. Usually in the form of multinational corporations (MNCs), foreign investors are driven to invest overseas due to their possession of superior technology or some type of comparative advantage, to maintain international competitiveness in the midst of rising production costs at home, or/and to counter certain moves of their rivals. 9.1.1 Forms of Foreign Direct Investment The activities of MNCs may take the form of horizontal integration in which case large corporations open new subsidiaries worldwide, or one or several existing firms competing in the host country may be bought up by a large international corporation, and competition is reduced and market divided in oligopolistic fashion. Horizontal integration may be domestic market-oriented or export-oriented investments. For example, Toyota setting up an assembly plant in ASEAN is a domestic market-oriented investment whereas Sumitomo’s chemical complex in Singapore is an export-oriented one. They may also take the form of vertical integration by...
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