First of all, FED is defined as an Investment In one economy by a multinational or transnational corporation based in other country. It involves a long-term relationship and either full or partial management control of real assets (Lankness’s ; Diversification, 2011). FED Includes all funds provided by an Investor, either directly or through an affiliate. FED arises when the host country has an investment opportunity that it cannot exploit by Itself as It lacks of technology and knowledge, or due to market Incompleteness.

A multinational corporation (NC) may be able to exploit such an opportunity because it has the necessary capital, technology, and managerial skills to do so (Gingerbread, 1969 cited In Gazillion ; Sartre, 2007, Peggy). Before making an investment, investor will look at various aspects such as firm size, political institution, infrastructure, market size, investment incentives and more. A number of studies have examined different selections of factors.

In general, there are three categories of determinants that affect FED decision: (1) attractiveness of economic conditions which includes market size and physical infrastructure; (2) Institutional framework consists of Investment Incentives and political Institution; (3) NC strategies. Political institution which plays the role of sustaining the politics is n important element in the inflow of FED. As we know that a foreign investor cannot prevent the government In the host country from changing the environment In which the investment decision was made (Zionist ; Sartre, 2007).

Thus, political institution with political credibility and flexibility offer credible and solid guaranties to multinational corporation. Furthermore, the degree of protection of property rights and the quality of institution are keys in determining the expected return to foreign investors. Weak protection intellectual property deters foreign investors to invest in genealogy-intensive sectors that rely heavily on Protection of Intellectual property rights (PR) and cause them to undertake projects focusing on distribution rather than local production (Smartens, 2002 cited in Brooks, Fan ; Assuming, 2003).

Poor Institutional framework will Increase the risk and uncertainty of Investment, leading to high cost and low profit. Countries with relatively poor legal protection of assets, and low degree of political stability, normally show high rates of expropriation, and therefore cause Investment less attractive (Gazillion ; Sartre, 2007). Investment incentives provided for foreign investors and openness to international trade is another determinant of FED.

Investment promotions such as cheaper land greater efficiency than in other host countries, thus finally increases competitive advantages of firms. Brooks, Fan ; Assuming (2003) stated investment incentives is to reduce the uncertainty, asymmetric information and related search costs, and other transactions costs faced by foreign investor, particularly the amount of time and number of steps needed in acquiring approval. From the viewpoint of economic condition, market size is also another important determinant of FED made by multinational organization.

Market size is usually measured by GAP or per capita income. A large market size gives a opportunity for foreign investors of scale that make it conductive to sell not only in the internal market, but also for re-export to other markets (Lieu, 2010). Jackrabbit (2003, cited in Lieu, 2010) stated that a large market size of a location can attract great amount of FED through an increased demand. For instance, investor regard China as an enormous market because China has a population of 1. 2 billion, with vast potential for consumption.

Its rapid economic growth and continuously increased purchasing power in recent decades has made China attractive to FED. The availability of adequate infrastructure also affects the decision of selecting investment location. Providing infrastructure such as power supply, transportation facilities, and communication networks is to aid the operations of production and enables foreign investors to move their production materials and products more easily to designated area. The more highways, railways and interior transport waterways are adjusted according to the size of host country, the more FED inflows.

Moreover, high quality of telecommunication facilities will save time and reduce the cost of communication and data gathering, then increase the level of efficiency of business activities (COED , 2000). Regions with poorly developed infrastructure usually attribute to low level of productivity and thus the low return to the firms discourages and deters the inflow of FED (Lieu, 2010). Dunning (1998, cited in Lieu, 2010) identified four main motivations of FED: market- seeking, efficiency-seeking, asset-seeking, and resource-seeking.

The decision making of NC strategic – foreign market entry mode depends on the motivation of FED. Market-seeking motivation is basically focused on gaining access on foreign market by setting up production facilities in host country for supplying local and regional market. Thus, criteria of such investment are market size, transport costs and growth prospects. On the other hand, NC with asset-seeking motivation will looking for the location with cheap natural resources and labor force because it is export-oriented and entails relocating parts of the production chain to low-cost location.

Efficiency- seeking motivation is described as investing in a foreign country to advantage of a rower cost structure. NC with this kind of motivation looks for the most economic sources of production to serve a multi-country standardized market (Gout, 1988 cited in Lieu, 2010). Generally, FED can be divided into two types: Greenfield investment and Mergers ; Acquisition (M;A). Greenfield investment is the combination of two or more companies to achieve strategic and financial objectives (Bertrand, 2004). While Greenfield investment is defined as creation of a subsidiary form by a NC in a foreign country.

The trend in FED over past few decades has undergone some significant changes. From Figure 1, it shows that the growth of world FED increased significantly because many countries started to relax regulations and promote investment incentives to attract FED. Driven by large cross-border mergers and acquisitions (M;A), growth rate of FED has risen tremendously. However, the fall of world FED flows in 2001 was mainly concentrated in advanced countries as a result of a considerable drop in M;As and the aftermath of 11 September 2001 incident (Figure 2).

FED inflows to developed countries decreased by 59%, compared with 14% in developing economies. FED in 2001 was higher than in 1998, after which aromatic incline in M;As. In 2002, similar trends continued with a major decline in developed countries and a smaller decline in developing countries. Since 2003, global FED outflows started to rise until 2007, and came to a temporary halt in 2008 and 2009 as a result of financial crisis and the global economic crisis. The economic slowdown has increased the competitive pressures, hence many NC are forced to search for cheaper locations.

This has resulted a redistribution of FED towards developing countries such as China, where growth has reportedly been higher than in developing countries (Choc, n. D. ). FED flows from developed nations’ multinational corporations have grown by roughly 40% on average from 2003 until end-2007, supported by high economic growth in key host economics and strong corporate performance, In 2008, due to the financial crisis and global economic slowdown, FED flows from developed countries fell by almost 17%.

Europe Union and United States remained to be the largest providers of FED flows in the world, contributing around 75% since 1991 of total FED outflows, in 2007 and in 2008. On the other hand, FED from developing countries amounted to approximately 12-13% of total FED outflows in 2007 and 2008. The regional distribution of developing economies’ FED outflows has undergone considerable change over the past three decades. Asia has overtaken Latin America and the Caribbean to become the dominant region for Macs involved in FED (Savant, Masked ; McAllister, 2009).

NC from emerging market have become important investors in many developing countries and increasingly invest in advanced countries. The overall number of Macs from developing countries has been rising in the line with total FED outflows. From the viewpoint of inflow FED, EX. and US also were the biggest recipients in asses. At the name time, countries in Asia started to receive more shares of world FED inflows beginning in the asses (Brooks, Fan ; Assuming, 2003). In 2009, US still maintained its position as the largest host country, but many European countries’ ranking dropped.

While two Asia countries where China and Hong Kong became second and fourth most preferred destination in 2009 (UNTIL, 2010). The sector composition of global FED flows also has undergone considerable changes. While FED into services sector made up around 25% of global FED stocks in the early asses, services sector nowadays account for almost two thirds of global FED lows. Besides services sector, FED into infrastructure sector such as electricity and telecommunication has been rising strongly.

Furthermore, natural resources constraints and the challenge of sustainable economic growth has resulted the changing of FED landscape. The scarcity of water and arable land has already led to an increased FED into the agricultural sector of several developing and least developed nations (Actual, 2009 cited in Savant, Masked & McAllister, 2009). A has been observed over past two decades. This is due to financial markets usually roved efficient mechanism to set the value of M&A, but no such mechanism to set the value of Greenfield investment (UNTIL, 2010).

However, during financial crisis, financial market becomes unreliable and the collapse of financial market has deterred Mac’s financing of M;A. Thus, most of the drop in FED in 2008 and 2009 was due to a substantial decline in M;A rather than Greenfield investment. Over the last couple of decades, many countries put a lot of effort in FED promotion to attract investment from NC because they expected that NC will enhance their economic development.

Theoretically, FED can stimulate investment, human funds formations, technical progress and productivity, and other factors which are essential to increase the welfare of a country (Lankiness ; Deprivation, 2011). First and foremost, FED can bring modern technologies and raise the efficiency with which technologies are used. FED also can increases competition in host economy. Local firms may be able to improve their productivity, forced to introduce new technology and work harder in order to compete with Mac’s affiliates.

NC may improve the allocation efficiency by entering into industries with high entry arises and reducing monopolistic distortions Furthermore, FED brings benefits in terms of export market access arising from economies of scale in marketing of foreign firms. Besides their contributions through Joint ventures, foreign firms can serve as catalyst for other domestic exporters to help them underlie the strength and weakness in the host country (Brooks, Fan & Assuming, 2003). FED can transfer the better management techniques to host country by setting up training centre and bringing experts.

Besides management skills, techniques for inventory and quality control and standardization also can transferred to the workers. The entry of NC will raise the demand for domestically produced intermediates in the host country, which leads to the entry of new firms in the imperfectly competitive intermediate sector, and a reduction in the cost of production (Blossom & Kook, 2003). At the same time, there are some negative impact and drawbacks of FED. FED does not always increase welfare of all host country.

In order to attract FED, tax breaks and subsidies given by host country can lead to substantial reduction of government revenues which could otherwise be used to invest in education and infrastructure hat ultimately fastens economic growth (Epstein, 1999 cited in Silliness, 2010). Increased competition as a result of inflow FED may push out and kick out more local firms that not able to compete with Macs. Thus, many Jobs might be lost instead of creating. Additionally, positive capital inflow often turn to negative if investor use cheap local raw materials and resources in production but sell final goods at higher price.

When FED entry an industry in which an existing firm has monopoly power in the world market, the price of exportable decreases as a result of increase in output reduced by NC, eventually it worsens the term of trade and reduce welfare in the host country (Brooks, Fan & Assuming, 2003). There is also an assumption and expectation that host country can absorb large inflows of capital without large decline in its rates of return. Nevertheless, when capital grows faster than the productivity of labor, productivity of labor will decline, which will cause a non-treatable goods and services relative to those of imported goods and services.

If the world demand for the exports is perfectly price-elastic, the price of non-treatable will rise relative to the price of exports as well. As a result, the change will impact the returns to factors that are used intensively in either treatable or non-treatable sectors. Hence, FED may affect the real income for any given level of real output. Effects of FED can be both positive and negative. They depend on the type of FED, sector, scale, duration, location of business, and many other factors.

Numerous researches and studies stated positive effects of FED are more featured in the case of Greenfield investment because Greenfield investment are likely to encourage development. While positive externalities are much lower if not negative in the case of M&A. Many researchers agreed that impact of FED depends on the development stage of host country. It means that FED has a beneficial impact on growth only if the host country has achieved sufficiently high level of development (Lankiness & Deprivation, 2011). On the other hand, theory stated that FED can minimize level of poverty.

This distinctive North- South, rich-poor, home-foreign allegations that Mac’s have created in the past few decades have been subjected to debates on Its political and economical effects In the world. Because of the large wealth these corporations accumulate, they in some cases have expenditure equal or higher than a small country’s GAP. This also gives them an economical leverage in both home and foreign markets. Mac’s are generally perceived as negative agents by economic nationalists onto their foreign presence.

The argument is that OLD competes for Multinational corporations’ foreign direct Investment which may stimulate their economies, but though this competition amongst nations, we can observe a decrease in environmental regulations, deterioration of workers’ rights, and the establishment of a dependency relation between the NC and its host country. The reason Macs are attracted to foreign markets often include, cheap labor, lower taxes, less governmental intervention and market specialization.

In order to retain control of a market, Mac’s have been witnessed to practice lobbying and acquire considerable political power within a state. The Increase of power Is a direct challenge to the internal political stability of the countries they occupy and threaten their sovereignty as well. Thanks to neo- liberal policies since the ass’s, the numbers of Mac’s have multiplied considerably. Those polities allowed the existence of Mac’s but also allowed this success in the global south.

While advocating the liberalizing of former colony’s markets it made it possible for Mac’s to penetrate and destabilize the fragility of those economic structure In their advantage. The economic growth of Mac’s correlate directly with their political involvement and political power acquired through those gains. Today Macs are an integral part of the poll-economic affairs of the world. Other Scholars eve argued In favor of the effects of Macs and justified their impact as positive into foreign economies.

These economies liberalism demonstrate the positive effects of Mac’s both at home and abroad. Arguably the introduction of new technologies, administrative training and FED are all positive effects of Macs. The production of goods In a local market sensitive to the needs of the foreign markets. Mac’s also create jobs abroad whether it is in the productivity sector or the business management aspects of the cooperation, therefore reducing unemployment and introducing new business training to the foreign markets.

Aside from only managing reduction and financial assets, multinational corporations introduce western style of living; working and consumption In the Laics which helps ameliorate those Because of Macs, the world is becoming ever more globalizes foreign markets are in direct contact with western corporations whom do not only trade cheap labor but also western culture and values at parts of the world that may be living under oppressive governments or lower standards of living.

Although Macs do have some potential benefits to the markets they have invested in, it seems that they do more harm. Home markets face the extraction of financial investments and the enmeshment of employments opportunities for home citizens. Since the ass’s some countries successfully developed without the injection of FED in their economies such as South Korea, but many other have been negatively affected by FED.

It created a dependency relationship between Mac’s and Olds and preventing them to develop further without the involvement of FED. Under Mac’s there’s also the weakening of the states authority and it continues will potentially lead to the creation of the world governed by capitalistic ventures. This type of global community would be polarize from extremely rich to extremely poor states.