Monday, March 30, 2009

reasons for international Movements of capital (3)

5- tariffs and nontariff barriers in the host country also can induce an inflow of foreign direct investment .if trade restrictions make it difficult for the foreign firm to sell in the host country market,then an alternative strategy for the firm is to " get behind the tariff wall" and produce within the host country itself.IT as been argued that U.S companies built such Tariff factories in Europe in the 1960s,shortly after the European Economic community (common market) was formed ,with its common external tariff on imports from the outside world .such U.S investment continued in the 1990s as Europe pressed for even closer economic integration and adopt a common currency for 11 countries in 1999.
6-A foreign firm may consider investment in a host country if there are low relative wages in the host country,although studies indicate that low wages per se are not as much an enticement for FDI as envisioned by the general public .Clearly,the existence of low wages because of relative labor abundance in the recipient country is an attraction when the production process is labor fact ,the production process often can be broken up so that capital-intensive or technology-intensive production of components takes place within developed countries while labor-intensive assembly operations that use the components take place in developing countries .this division of labor is facilitated by offshore assembly provisions in the tariff schedules of developed countries.

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