The main objective of this scientific paper is to define the role of Multinational Companies (MNC) in the international trading system. It is to be shown which effects the contrary trade policies free trade and protectionism have on international trade and the investment behaviour of MNC. The opportunities and risks of FDIs should be identified from the perspective of the MNCs and investment countries.
The scientific paper thesis contains five chapters. Key terms and the relation between MNC and international trade will be defined in chapter two. At the beginning of chapter three, the Heckscher-Ohlin Model will be explained. Then theorems based on this international trade theory will be used to explain the cause and effects of international trade.
In the fourth chapter, the different motives of free trade and protectionism and their effect on FDIs will be examined. The potential chances and risks of FDIs for the investment receiving countries and MNCs are then discussed. In the last chapter, the key findings of this paper are summarized. The paper ends with a conclusion and an outlook, where further significant research needs are addressed.
Companies are forced to permanently increase their efficiency and effectiveness in all functional areas to stay competitive. In today´s competition, it is almost impossible to avoid the international markets, especially for large enterprises. The strong internationalisation of the global economy over the past decades can be attributed to the increased volume of goods, services and technologies traded internationally. There has also been a strong increase in foreign direct investments (FDIs). However, the trend over the last decade has gone in the opposite direction, especially for developed countries.
The General Agreement on Tariffs and Trade (GATT) is intended to provide a basis for free international trade, but an increasing number of national laws and regulations lead to a multitude of trade barriers. The growing use of customs and other instruments of protectionism, particularly by the industrialised countries, is one of the central unsolved problems of international trade. These measures aim to preserve national advantages at the expenses of the wealth of the global society.
Table of Contents
1 Increasing protectionism endangers the global wealth
2 Multinational Companies and different types of foreign direct investments
2.1 The role of Multinational Companies in international trade
2.2 Scope and types of foreign direct investments
3 Impact and cause of International Trade explained with the Heckscher-Ohlin Model
3.1 The Heckscher-Ohlin Model
3.2 Impact of international trade based on the HOM
4 Impact of MNC and their FDIs based on different forms of trade policy
4.1 Trade policies and their effect on FDIs
4.2 Impact of FDIs from MNC on foreign countries
5 Summary, Conclusion and Outlook
Objectives and Core Themes
This paper aims to analyze the role and impact of multinational companies (MNCs) on global trade and foreign direct investments (FDIs), while evaluating how different trade policies influence investment behavior and economic development.
- The role of multinational companies in the global trading system
- Analysis of foreign direct investments (FDIs) and their strategic motives
- Application of the Heckscher-Ohlin Model to explain international trade patterns
- Evaluation of the impact of trade policies like free trade versus protectionism
- Assessing the risks and benefits of FDIs for developing and developed economies
Excerpt from the book
3.1 The Heckscher-Ohlin Model
International trade theory is a field of economic sciences, which analyses the reason for and the impact of international trade on the involved parties. Almost all international trade theories are based on two basic models of international trade – the Ricardian Model and the Heckscher-Ohlin Model.
The Ricardian Model is named after David Ricardo, who invented the theory in 1817. It explains foreign trade between two countries that both manufacture the same two products. The basic assumption is the existence of different labour productivity that leads to different opportunity costs. If both countries specialise according to their comparative advantage, they both can benefit from the trade. The comparative advantage is the ability of a country to make a product at lower opportunity costs than the other country.
The Heckscher-Ohlin model (HOM) also known as the factor-proportions theory was invented in the 1920s and 1930s by Eli Heckscher and Bertil Ohlin. It is still one of the most important models of international trade theory and serves as the basis for many modern models of trade theory. Like Ricardo, Heckscher and Ohlin assumed a comparative advantage and showed the advantage of foreign trade. However, they attributed the comparative advantage to differences in factor endowments of the countries.
Compared to the Ricardian Model, the most important change is the addition of a second factor of production. In its simplest form, which will be used in this chapter, it describes the exchange of goods between two countries, producing the same two products with two primary factors of production.
Summary of Chapters
1 Increasing protectionism endangers the global wealth: Defines the scope of the paper and highlights the rising challenge of protectionist measures against the background of global internationalization.
2 Multinational Companies and different types of foreign direct investments: Explains fundamental economic definitions and categorizes FDI motives and the Eclectic Paradigm (OLI).
3 Impact and cause of International Trade explained with the Heckscher-Ohlin Model: Provides a theoretical foundation by explaining the Heckscher-Ohlin Model and related theorems to analyze trade impacts.
4 Impact of MNC and their FDIs based on different forms of trade policy: Examines how free trade and protectionism affect FDI flows and the resulting impact on host countries.
5 Summary, Conclusion and Outlook: Synthesizes the findings regarding the interplay between MNCs, trade policies, and global economic development.
Key Terms
Multinational company, MNC, Foreign Direct Investment, FDI, trade policies, Heckscher-Ohlin model, trade, international trade, protectionism, free trade, global wealth, factor endowments, comparative advantage, OLI paradigm, economic development.
Frequently Asked Questions
What is the primary focus of this seminar paper?
The paper focuses on the role and impact of multinational companies (MNCs) on international trade and investments, specifically analyzing how trade policies shape the behavior of these firms.
What are the central themes discussed in the work?
The core themes include FDI definitions and strategies, the Heckscher-Ohlin Model, the effects of free trade versus protectionism, and the socioeconomic impact of MNCs on host countries.
What is the main objective of the research?
The objective is to define the role of MNCs in the global trading system and to identify the opportunities and risks associated with FDIs from both the company and the host country perspective.
Which scientific model is primarily used for analysis?
The paper primarily utilizes the Heckscher-Ohlin Model (HOM) and its resulting theorems to explain the causes and effects of international trade patterns.
What is covered in the main body of the paper?
The main body covers key economic definitions, the theoretical framework of international trade models, the classification of FDI motives, and the practical impacts of trade policy instruments.
Which keywords characterize the work?
Key terms include Multinational company, FDI, Heckscher-Ohlin model, trade policies, protectionism, comparative advantage, and economic development.
What does the "Eclectic Paradigm" imply regarding FDIs?
The Eclectic Paradigm (OLI) states that FDIs occur when a firm possesses specific Ownership, Location, and Internalization advantages, which together make foreign investment more beneficial than domestic production or licensing.
How do protectionist measures affect the global economy according to the paper?
The paper argues that while protectionism may offer short-term national benefits, it ultimately threatens global wealth by disrupting international supply chains and increasing the risk for multinational investments.
- Quote paper
- Anonym (Author), 2020, Multinational companies. Their role in and impact on international trade and investments, Munich, GRIN Verlag, https://www.grin.com/document/1010355
