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The Effects of Foreign Direct Investment on the Home CountryForeign Direct Investment FDI could be defined as a minimum 10 percent investment of equity or capital by a firm based in one country home economy to an enterprise resident in another country the host economy The new entity then becomes a multinational enterprise MNE Many companies prefer FDI to exporting to gain access to new or larger markets gain cost advantages in the host country and in response to trade barriers There has been significant global growth of FDI since 1982 Although the United States is the largest home and host country of FDI outflows have exceeded inflows Japan in contrast receives much less inflows than outflows Cultural and financial management variations between countries do seem to influence the direction of FDI flow Strategic governmental trade policies in recent years have supported the globalization to a more efficient world economy Companies often get governmental assistance in attaining international economies of scale and first mover advantages The huge inflows of FDI into the United States could be due to the falling value of the dollar in the late 1980s and early 1990s indicating exchange rates play a significant role in the choice of either horizontal or vertical FDI opportunities over exporting Honda successfully used vertical FDI in the 1980s by establishing high quality operations in the United States The company utilized US suppliers for machine tools and parts capitalizing on currency exchange rates and local responsiveness FDI is often preferred over licensing in the high technology or specialized industries and in many cost sensitive industries Significant research is necessary to evaluate the advantages of trade vehicles and their effects on the home country Parent companies lobby for governmental policies that support free trade in order to gain competitive advantages in developing global markets Many businesses suffer losses for many years focusing on long-term growth potential This paper will analyze the possible effects of FDI on
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