Thesis Statement:
East Asian countries have served as host countries for various multinational organizations. These organizations invest in the human capital and technology of East Asian countries. As a result, the once underdeveloped countries can flourish into developed ones.
Research Question:
How does foreign direct investment promote economic growth in East Asia?
Introduction:
East Asia once represented one of the poorest regions in the world. However rapid growth, during the 2000s, helped advance the development of the region. Foreign direct investments (FDIs) have played a major role in East Asian economic growth. Dunning (1981) comprehensively defines FDIs as: “ the existence of multinational enterprises, a firm in one country with certain ownership advantages would open a subsidiary in another country with locational advantages and both advantages can best be captured by internalizing production via direct investment.” In essence, capital-abundant countries create an inflow of resources into capital-scarce countries.
Get Help With Your Essay
If you need assistance with writing your essay, our professional essay writing service is here to help!
Essay Writing Service
Gholami, Tom Lee and Heshmati (2003) specify the following growth theories as promoters of economic growth, as it relates to FDIs: capital investment(classical model), technical progress (neoclassical models), accumulation of human capital and externalities (new growth theory). According to Kurtishi-Kastrati (2013), the classical model is an older one that indicated a one-way flow of capital from developed to underdeveloped countries. Contrarily, FDI is a two-way flow between developed and underdeveloped countries. Secondly, Mahembe and Odhiambo (2014) shared that the neoclassical growth model assumes that economic growth is produced by the accumulation of exogenous development factors. It has been shown that through this process, capital accumulation directly contributes to economic growth concerning the share of capital in the national production.
Lastly, the new growth model postulates that economic growth is driven by two main factors: the stock of human capital and technological changes (Romer, 1986, 1990 and 1994; Lucas, 1988). Nair-Reichert and Weinhold (2001:154) also argue that this growth model looks at the long-term and can lead to economic growth, driven by technology transfer, spillover and diffusion effects. Thus, it would then appear that the relationship between FDIs and economic growth is interdependent. This paper will seek to examine how these development resources, based on the theories presented, continue to promote economic growth in East Asia.
Outline:
Main Points With Supporting Details:
1) East Asian economies recognized the need for diversification, after the collapse of the Soviet Union.
a) After the collapse of the Soviet Union, upon which many East Asian countries relied for technical support, they realized that there was a need for a regional bloc.
b) East Asia is now supported by both informal and formal integration.
2) Free-trade agreements were a necessary component, in the placement of subsidiary organizations in East Asia.
a) Krasner’s Hegemonic Stability theory suggests that trade openness provides smaller states with more welfare benefits.
b) The Japanese-East Asian trade relationship, with reference to FDIs, demonstrates the positive impact of trade liberalization.
3) Foreign direct investment into human capital and technology results in the promotion of economic growth through production-efficiency that spills over into other sectors of the East Asian economy.
a) Sarel (1996) mentions that the rate of labor participation can be increased for a while and will increase production, but it can obviously not increase indefinitely. And, ultimately, more growth in capital than in labor leads to decreasing returns on capital, resulting in a fall in output growth, even if capital continues to grow at a constant rate. Therefore an economy needs to continually improve its technology and human capital in order to achieve sustainable growth.
b) Spillover from foreign direct investments continues the promotion of economic growth. The biggest spillover, affected by production-efficiency, is encountered in East Asian import and export markets.
Conclusion: Foreign direct investments create East Asian economic growth through a combination of trade openness ,along with, foreign direct investments into human capital and technology.
Bibliography
Blomström , M, and A Kokko.2003. “The Economics of Foreign Direct Investment Incentives.” NBER Working Paper Series Working Paper 9489.
Dunning,J. 1981.“International Production and Multinational Enterprises”. London: George Allen and Unwin.
Gholami, Roghieh; Lee, Sang-Yong Tom; and Heshmati, Almas, “The Casual Relationship Between Information and Communication Technology (ICT) and Foreign Direct Investment (FDI)” (2003).ECIS 2003 Proceedings. 72. http://aisel.aisnet.org/ecis2003/72
Kurtishi-Kastrati, S. 2013. “Impact of FDI on economic growth: An overview of the main theories of FDI and empirical research.” European Scientific Journal 9 (7): 57.
Lucas, R. 1988. “On the mechanics of economic development.” Journal of Monetary Economics, 22 : 342
Mahembe, E, and N Odhiambo . 2014. “Foreign Direct Investment And Economic Growth: A Theoretical Framework.” Journal of Governance and Regulation 3 (2).
Nair-Reichert, U. and Weinhold, D. 2001. “Causality tests for cross-country panels: A new look at FDI and economic growth in developing countries.” Oxford Bulletin of Economics and Statistics 63(2): 153-171. 38
Overseas Research Department,. 2003.” Prospects for Free Trade Agreements in East Asia.” Japan External Trade Organization (JETRO): pp1-29.
Peng, D, . 2000. “The Changing Nature of East Asia as an Economic Region.” Pacific Affairs 73 (2):pp. 171-191.
Reichert, UN, and D Weinhold . 2001.”Causality Tests for Cross‐Country Panels: A New Look at FDI and Economic Growth in Developing Countries.” Oxford Bulletin of Economics and Statistics 63 (2).
Romer, P. M. 1986. “Increasing returns and long-run growth.” Journal of Political Economy, 94:1002-1037. 44.
Romer, P.M. 1990. “Endogenous technological change.” Journal of Political Economy, 98, S71- S102. 45.
Romer, P. M. 1994.“The origin of endogenous growth.” Journal of Economic Perspectives, 8(1): 3- 22.
Sarel, M,.1996.”Growth in East Asia What We Can and What We Cannot Infer.” Economic Issues 1
Urata, S, and K Kiyota .2005. “The Impacts of an East Asia Free Trade Agreement on Foreign Trade in East Asia.” International Trade in East Asia, NBER-East Asia Seminar on Economics 14.
Urata, S, . 2014. “Japan’s Trade Policy with Asia.” Japan, Public Policy Review 10 (1):pp.1-31.
Zhang, KH, . 2001. “Does Foreign Direct Investment Promote Economic Growth? Evidence From East Asia and Latin America.” Contemporary Economic Policy 19 (2).
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download