How 2008 Global Economic Crises affected Foreign Direct Investments to Developed and Developing Countries? Ayse Merve Özkalay-2005431029 Fatma Güler-2005431016 Hakan Günes-2005431018

AIM In this research, our aim is to understand how FDI inflows into developed and developing countries affected from 2008 Global and Economic Crisis.

OUTLINE Definitions Determinants of FDI Affects of Crisis Conclusion

Definition of FDI Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin.

Foreign Direct Investment (FDI) A long-term investment by a company in one state (the “parent company”) to acquire assets located in another state’s economy. Defines control as owning 10% or more of the ordinary shares or voting power of an incorporated firm, or its equivalent for an unincorporated The parent company must retain control over its foreign affiliate for the purposes of the investment. !!Differs from portfolio investments, such as stocks and bonds, because foreign investors have control over their investments.

Types of FDI Greenfield investments; building new facilities or expansion of existing facilities Mergers and Acquisitions; taking over an existing foreign firm, although some capacity building often takes place subsequently Horizontal Integration which is operating in the same industry as the home industry Vertical Integration which is concerned with industries related to the home industry through vertical integration. Backward Vertical Integration Forward Vertical Integration

Vertical Integration Backward Vertical Integration; toward the source of raw materials, a parent company provides inputs for a local firms domestic production process. Forward Vertical Integration; toward the sale of the end product, a parent company sells the outputs of a local firms domestic production.

Objectives of FDI SALES EXPANSION OBJECTIVES Overcome high transportation costs Lack of domestic capacity Trade restrictions Lower production costs abroad. RESOURCE ACQUISITION OBJECTIVES Savings through vertical integration Gain access to cheaper of different resources and knowledge Gain govermental investment incentives.

Advantages of Foreign Direct Investment Knowledge and technology transfer to domestic firms Labor force productivity Economic benefits for the local economy Enhanced competition Improved access for exports abroad Financing external current account deficits Encourages integration between trading partners.

Disadvantages of Foreign Direct Investment Give rise to a potentially volatile balance of payment flows, resulting in currency fluctuations Inefficiency when incentives produce benefits that outweigh the costs, but authorities fail to properly maximize the benefits and minimize the costs. Ineffectiveness when FDI incentives fail to produce benefits to the host economy-when the budgetary costs of attracting FDI exceed the benefits. Adverse effects on domestic firms Opportunity costs

Literature Review Previous period FDI Inflation rate Interest rate Growth rate Trade (openness) rate (Cevis, Camurdan 2009)

Literature Review Policy variables Business variables Market-related economic determinants Resource-related economic determinants Efficiency-related economic determinants (UNCTAD report 2002)

Literature Review FDI to supply for local market FDI for cost-minimizing Asset-seeking FDI Macroeconomic indicators such as market size, growth rate, GDP per capita on FDI Institutional variables such as low level of corruption, government stability, enforcement of contract law (Dumludag 2009)

FDI (1970-2008) Source: UNCTAD

FDI in developing countries with and without China Source: UNCTAD

FDI Source:UNCTAD

FDI Source : UNCTAD

FDI Source: UNCTAD

FDI Source:UNTAD

Worldwide FDI inflows with three different trajectories, 1990-2012 (Billions of dollars)

Merger and Acquisition

Sectoral Breakdown of Global FDI Stock Source: UNCTAD

The Global FDI Inflows

Conclusion Nations with low levels of protests, Repressive Regimes, Countries whom International Financial Institutions directs and attracts foreign direct investment Take high level of FDI. (Shandra, Ross, London, 2003)