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Although modern economies have increasingly become globalized, opinions of foreign direct investments (FDI) have varied throughout human history.
When researching the history of prominent global economies, I realized that many have had the opportunity for strategic global expansion into international markets. This can be seen in different political schemes including the Soviet Union, United States, and China. The Soviet Union is a centralized economy, the United States a decentralized economy, and China a mixed economy.
The difference between these economic systems is how much of the economic resources a government controls. During the Soviet Union era, the government controlled all the means of production and had autonomy over international trade.
The United States allows corporations to balance the supply and demand of the country's economic needs. These two systems are contrary, while China’s government is a mix between the two.
In its early stages, the rise of China was due to its government's ability to promote investment through low wages and high profits. This allowed the private economic activity to fund the government and reinvest. Since then, China has allowed private corporations to invest their profits into private markets which have led to reinvestment and innovation. The Chinese government still has some control over domestic resources but has significantly decreased their control over these resources since the current regime’s inception in 1949.
These three governmental structures correlate to different economist’s viewpoints relating to foreign direct investment.
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The Soviets favor a ‘Marxist’ viewpoint that supports socialism. They support the philosophy that FDI brings profits away from the “host” country and isn’t mutually beneficial.
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The United States support’s Free Market Economic conditions and believes that FDI’s assist in the transfer of knowledge, technology, and human capital. Supporters of this philosophy believe that FDI is mutually beneficial for host and investing countries.
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China’s economic situation is congruent with the Pragmatic Nationalistic Economic viewpoint. History shows that FDI’s have benefitted China due to their economic growth and increased exports over the past decades. However, whether China is able to transfer to a developed and sustainable economy will determine whether these investments benefit China in the long run.
The Pragmatic Nationalistic Economic Viewpoint is that FDI’s can benefit a host country through economic growth. However, this growth comes at a cost because profits are returned to the investor and not the host.
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