Trump imposing Tariffs: Steel and Aluminum

Trump imposing Tariffs
Trump imposing Tariffs

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Trump imposing Tariffs

What’s your opinion on Trump imposing tariffs on steel and aluminum? Who are the winners and losers of this new policy?

Tariffs are taxes paid on imported goods. In earlier eras tariffs were an important source of government revenue, but in recent decades the U.S. government has used tariffs primarily to shield certain industries from foreign competition. Over the years, Congress has delegated substantial authority to impose tariffs to the executive branch, which means presidents have considerable discretion to increase tariffs on specific products or imports from specific countries.

President Trump used this power to increase tariffs on solar panels, washing machines, steel, and aluminum, as well as on a broad range of products from China. Overall, in 2019, the U.S. government brought in $79 billion in tariffs, twice the value from two years earlier and a sharp break from recent trends.

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Evaluating and Entering an International Market

Evaluating and Entering an International Market
Evaluating and Entering an International Market

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Evaluating and Entering an International Market

Evaluating and Entering an International Market for “John Lewis Company” (China or United States)

You are the manager of a UK-headquartered company of your choice. The company seeks growth opportunities and considers expanding further into the global marketplace. A first screening of international markets led to a short list of two potential target country markets – one developed and one emerging economy. The board of your company is asking you to develop a global marketing plan for one of those countries. Your colleague is asked to write a marketing plan for the other country. The board would like to see both plans before making a final decision which country to target.

Preparation for Final Report

Choose a partner in your workshop. In workshops with odd numbers, there can be a group of three students.

Together, decide on an actually existing company that is headquartered in the UK and that is successfully operating in
the UK domestic market. The company might or might not have collected experiences with international markets.

Together, choose two countries from the list below – one developed and one emerging country market – and decide
who of you is working on which country. Note: In groups of three students, please choose three countries. The
company that you chose should not already be operating in the countries that you are selecting.

Together, work on the ‘report outline‘ to receive feedback from tutors and peers. For more information on
formative assessment see slides 24-30.

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Final Report

Individually, write a global marketing report: Assess the market attractiveness of the one country that you have
chosen for your company and offer strategic and tactical suggestions of how to best enter this market. Follow the
Global Marketing Plan Framework described in this slide deck (slides 13-23).

The report should include information on the company; information on the potential target markets’ macro and micro environments; recommendations on the market entry strategy and target customer; recommendations on how to adapt (or not adapt) the marketing mix for this country market. It should also include an invest – not invest recommendation. Do not consider costs/budgets.

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Distance concepts and their effects on bilateral FDI flows

Distance concepts
Distance concepts

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Distance concepts and their effects on bilateral FDI flows

Definition of distance

Distance is an important aspect to note in business. It is the difference in perspective of several aspects between two or more parties in any business. Distance is more significant in an international business platform than in a local or domestic set up. As developed by Pankaj Ghemawat (2011), the CAGE framework is used to define the different concepts of distance between countries in international business. CAGE, an acronym standing for Cultural, Administrative, and Economic distances. The definitions of this concept in the perspective of bilateral factors are as follows below.

Cultural distance

Whenever a pair of countries is involved in the trade, there is a likelihood to have distinguishing factors based on the diverse cultures of each party. This may include differences in; languages, ethnicities (this includes lack of social or connective ethnic networks), religious beliefs, norms, dispositions and values. Cultural distance is also often characterized by the lack of trust. The cultural background of customers affects their tastes and preferences that maybe much more significant especially when it comes to consumer goods.

Choices are often determined by individual’s social norms, for instance in the Chinese have a liking copyright violations, and this is deep in their history. Ceteris paribus, trade between two countries with a common language, e.g., the USA and Canada is likely to boom unlike where there is no common language. The cultural aspects also create a distance through impelling the decision made on substitute goods. Research reveals that tastes and colour are also linked to culture. Japan natives have a preference for small house appliances and automobiles, and this is their social norm (Berry et al., 2010).

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Administrative distance

Administrative distance is characterized by hostility in politics, lack of a common regional trade bloc, the disparity in the currency, differences in colonial history and other administrative matters. Policies created by individual governments may create a barrier to their cross-border trading. In the USA, bribery is illegal for companies and individuals, this has impacts the nation’s multinational business.

Barriers may also be raised through the creation of trade quotas, tariffs, restrictions on FDI and local enterprises preference regarding favoritism, subsidies, and regulations. A target nation’s institutional stability also influences their trade activities across the borders. Corporations shun from investing in corrupt nations (Siegal et al., 2012).

Geographic distance

It encompasses the physical distance between countries. How far a country is from another physically really impacts their trading activities. Differences may include lack of a clear land border, different zones in time due to the longitudes and different environments, whether and climatic conditions. The physical distance directly affects the transportation cost of goods and services.

For instance, the cost of oil in America may be higher if it was being imported from the Middle East. Geographic distance has a direct impact on the trade and FDI flows between any two given countries. It is, therefore, vital for an enterprise to consider the transport networks and information before engaging in any trade (Siegal et al., 2012).

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Economic distance

Every country in business has its unique economic factors. The poverty/ rich levels between countries are never similar. The more prosperous a country is, the more their involvement in the cross-border economic activities, unlike their poorer counterparts. Other differences may include the quality of the resources as well as their cost, for instance financial, natural and human resources.

The infrastructure, knowledge or information levels may also differ between two or more countries. Corporations tend to invest in foreign countries with similar economic patterns to that of their home country a good example is Indonesia and south Korea where Nike inc. and Reebok have heavily invested (Berry et al., 2010).


Berry, H., Guillén, M.F. and Zhou, N., 2010. An institutional approach to cross-national distance. Journal of International Business Studies, 41(9), pp.1460-1480.

Siegel, J.I., Licht, A.N. and Schwartz, S.H., 2012. Egalitarianism, cultural distance, and FDI: A new approach. Organization Science, Forthcoming.

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The Liability of Foreignness Concept Definition

The Liability of Foreignness Concept
The Liability of Foreignness Concept

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The Liability of Foreignness Concept Definition

Liability of foreignness is the total of costs, which comprises of the unseen costs associated with the engagement with new legislatures and cultures when doing business abroad unlike home.

How the LOF affects the balance between the costs and benefits of international diversification

Elango (2009) asserts in his definition of LOF that it results in a disadvantageous competition for any multinational company. Generally, according to Elango, the costs incurred by an enterprise abroad would not be incurred by a similar local company. The genesis of such costs could be cultural, geographical, economic and institutional distances that lead to an increment in costs and makes it hard to succeed abroad. LOF majors on the social expenditures of transactions overseas.

Such costs are gotten from the relational, unfamiliarity and discrimination challenges faced by the foreign companies, unlike their domestic counterparts. They are innately uncertain and may be incurred even in future. Unfamiliarity costs are a reflection of poor experience or knowledge in the foreign country hence a setback to the foreign companies as likened to the local enterprises. There is a tendency for the foreign investors to pay handsomely for what the locals acquire cheaply or at zero cost.

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For instance, local banks in Germany are likely to have a sigh of relief if the Bundesbank lowers the interest rates in a day’s time but British-based banks in the country may have nothing to celebrate. Such an LOF is related to the durability of its existence in the host nation. Short-term resolutions in the foreign country result to unexpected challenges that are covered in the additional costs incurred by the multinational company to realize a similar level of host-market awareness as the domestic company.

Unfamiliarity hazards result to a rise in the average cost of the foreign company, but the production level remains constant. Such building market awareness costs should be gotten rid of with time, although they may persist if the multinational corporation managers continue adhering to the global strategy and fail to involve themselves in the civic learning (Barnard, 2010).


Barnard, H., 2010. Overcoming the liability of foreignness without strong firm capabilities—the value of market-based resources. Journal of International Management, 16(2), pp.165-176.

Elango, B., 2009. Minimizing effects of ‘liability of foreignness’: Response strategies of foreign firms in the United States. Journal of World Business, 44(1), pp.51-62.

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China superpower of manufacturing economy

China superpower of manufacturing economy
China superpower of manufacturing economy

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China superpower of manufacturing economy

Over a period of many years, China has held its position as the world superpower of the manufacturing in the general merchandise sector. This is due to the rapid and dynamic growth in its economy, building focus in the world demand for manufacturing products and services.  The country’s population, political stability and consumer interest and pattern can be explain its position as the world superpower of manufacturing in general merchandize. The country is however experiencing stiff competition from India, one of the world’s rapidly growing country economies.

India has in the past twenty years rapidly increased its share in the manufacturing industry. The country has recorded positive improvement in its gross domestic product (GDP). India just like China records one of the highest populations in the world (Ghemawat & Hout, 2016, p. 86). This offers a vast market for consumers and traders in the region. The country has taken advantage of its growing population to invest in merchandise market development. This has posed a significant threat to China’s position as the world superpower in the manufacturing industry.

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Subsequently, it can be argued that India is rapidly rising into the next superpower after China through their shift in development of technology (Gupta & Wang, 2009, p.25). The country is facing a drastic change in the industrial revolution through adopting a modern forms of technology applied in the manufacturing industry. This has increased their overall business performance.

India has tightened its grip in both the private and public sector, embraced trade liberalization and increased their involvement in foreign direct investment (Xingxing 2015, p. 685). This has primarily improved the manufacturing industry of India, making it a viable candidate as the next superpower after China.

Furthermore, the rapid expansion of information technology in India has accounted for the growth of commerce, business services, and banking. Moreover, India has gained an international reputation as an IT enabled center of the world. This has increased its global position in the e-commerce sector, improving its strength in the manufacturing industry globally.

In addition, India is experiencing growing investment rate, with an average of thirty-two percent compared to that of China at thirty-five percent (Mahtaney, 2007, p. 2455). This rate is set to project in the next year and India could surpass China’s the rate, making it the world superpower in the manufacturing industry.

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China is facing a significant challenge in their population, as a large percentage of the population is set to experience old age in the future years. This is bound to affect its general labor output, unlike that of India which is strengthening. India has a demographic surplus of younger generation increasing their task force in the manufacturing sector (Takeuchi, Chen & Lam, 2009, 86). The growing generation is also experiencing the best form of education, expanding their expertise in the sector. Based on these projections, it is predicted that India may overtake China as the current superpower in the manufacturing industry.

Reference List

Ghemawat, P, & Hout, T 2016, ‘Can China’s Companies Conquer the World?‘, Foreign Affairs, 95, 2, pp. 86-98, Academic Search Premier, EBSCOhost, viewed 30 March 2016./

Gupta, A, & Wang, H 2009, Getting China And India Right: Strategies For Leveraging The World’s Fastest-Growing Economies For Global Advantage, San Francisco: Jossey-Bass, eBook Collection (EBSCOhost), EBSCOhost

Mahtaney, P 2007, India, China, And Globalization: The Emerging Superpowers And The Future Of Economic Development, Basingstoke [England]: Palgrave Macmillan, eBook Collection (EBSCOhost), EBSCOhost

Takeuchi, N, Chen, Z, & Lam, W 2009, ‘Coping with an emerging market competition through strategy-human resource alignment: a case study evidence from five leading Japanese manufacturers in the People’s Republic of China’, International Journal of Human Resource Management, vol. 20, no. 12, pp. 2454-2470. Available from: 10.1080/09585190903363763.

Xingxing, L 2015, ‘An Economic Analysis Of Regulatory Overlap And Regulatory Competition: The Experience Of Interagency Regulatory Competition In China’s Regulation Of Inbound Foreign Investment‘, Administrative Law Review, 67, 4, pp. 685-750, Business Source Complete, EBSCOhost,

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Soybean International Trade Essay

Soybean Marketing in the UK
Soybean Marketing in the UK

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Soybean International Trade

Soybean and soyfoods are widely marketed in the United Kingdom. The United Kingdom is ranked as the leading exporter of soy food and product (Kwon, 2007, p. 71). The country has maintained the products’ economic and market value, thus increasing consumer interest and market value each year. This has influenced the level of consumption and production of the product all over the United Kingdom. To identify the stability of the soy market in the UK, it can be analyzed through the folloing marketing mix elements


The pricing value of a product is an essential element of the marketing mix. This significanly affected the availability of the product in the market. Soybean is highly dependent on the market pricing value in the United Kingdom. The pricing for soya beans has been different in the UK depending on the quality and the maturity of the soybean. The quality of soy also influences its market value.

Tesco Soya beans for example have a high pricing value to indicate their quality in the market. The pricing of soy is strategic at influencing its worth in the UK market. During peak harvest, the pricing is set to drop and shoot during low harvest in the market (Hospes, 2014, 425).

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The location or place also influences the market allocation of soya bean in the United Kingdom. Most soy product in the UK is exported to the United States and Canada as the primary target location. The location is influential in determining the target consumer and the region of sale. The UK has specific market locations for their for soy products. Statistically, UK has increased their soy export position to countries like Chile, developing new market ground for their product and increasing the sale and marketing of soybeans and products (Tomei et al., 2010, p. 301). 

Soy products are also marketed in locations where consumers are keen on maintaining a healthy lifestyle. Such avenues offers a ready market for the soy products in the United Kingdom. This is strategic at increasing the market value of the soy product and different strategic locations in the UK.

Reference List

Hospes, O. 2014, “Marking the success or end of global multi-stakeholder governance? The rise of national sustainability standards in Indonesia and Brazil for palm oil and soy”, Agriculture and Human Values, vol. 31, no. 3, pp. 425-437. Retrieved from

Jarvis, L. 2002, “Soy isoflavones set to blossom as consumer interest grows”, Chemical Market Reporter, vol. 262, no. 8, pp. 12-14. Retrieved from

Kwon, N. 2007, “Super Soy!”, Canadian Grocer, vol. 121, no. 6, pp. 71-71,73,75. Retrieved from Tomei, J., Semino, S., Paul, H., Joensen, L., Monti, M. & Jelsøe, E. 2010, “Soy production and certification: the case of Argentinean soy-based biodiesel”, Mitigation and Adaptation Strategies for Global Change, vol. 15, no. 4, pp. 371-394.

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Fair Trade Jewellery Case Study

Fair Trade Jewellery
Fair Trade Jewellery

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Fair Trade Jewellery


This reports aims at establishing the manner in which Fair Trade Jewellery can be mainstreamed. A brief history is described in this paper that clearly looks at the emergence of Fair Trade Jewellery. Additionally, the report also draws an analysis on the challenges the jewelers face in the process of Fair Trade and concludes by giving some thoughtful insights on how this approach may be improved.

  1. Introduction

The purpose of this report is directed towards discovering the manner in which Fair Trade Jewellery can be mainstreamed. The aspect of fair trade Jewellery emerged as one of the responses aimed at tackling the discrepancies that have existed in the current global trade systems that is entirely based on the concepts of free trade. This aspect has evolved to see small organizations buying products from different producers in developing states and selling these products to their acquaintances through a global movement which primarily bases its campaigns of the benefits of such trade networks economies (Alvarado, 2009).

This segment therefore aims at analyzing the manner in which fair trade Jewellery may be mainstreamed or if this aspect of destined as a niche market. Additionally, the section will take an analysis of some of the challenges that jewelers face with the aim of making this a reality.

  • The Mainstreaming of Fair Trade Jewellery

It is clear to determine the fact that Fair Trade Jewellery offers practicable support directed towards combating the aspect of poverty and approaches that offer structural change on the unjustified trade relations (PR, 2015). The mainstreaming of Fair Trade Jewellery can in this case be depicted as the process of Fair Trade Jewellery economic actors developing approaches aimed at moving from a fully operation of Fair Trade value chain to the increase of operation in conventional market value chain. In achieving the goals of mainstreaming, the introduction and inclusion of product certification is considered, a factor that opens up possibilities for value chains with other mainstream actors.

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A fair approach of trade in this case is one that is characterized by approaches aimed at ensuring that both the social and environmental standards are adhered to, with this considered as an effective approach that ensures the sustainability of the environment and other livelihoods. However, it is essential to also consider the extent at which sustainable use of the environment and sustainable livelihood can be viewed (Jeevananda, 2015).

Fair-trade Jewellery production is one that has several defining elements that include the making of products from different materials. On the other hand, the producer organizations tend to operate in a highly segmented market where products are considered to be relatively expensive and are high in quality with most of the sales of these products done in the Western countries.  

Additionally, it is vital to point that organizations that engage in Fair Trade Jewellery have a social mission with profit considered as not the only goal of the operations. In consideration of the aspect of mainstreaming, it is vital to note that organisations are required to comply with the Fair Trade criteria’s (Boyd, 2014). Mainstreaming in this case creates the opportunity for these organizations to increase their sales, spread the risks noted in the industry and learn the different enterprenual skills that come from mainstreaming enterprises.

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  • Challenges that Jewelers Face

Considering the fact that Fair Trade jewelries sales continue to grow as a result of the growth in new geographical markets, few consumers are in a position to pay the much required for the products, a factor that points out to some of the challenges that this jewelers face (Child, 2015).

It can therefore be argued that since more consumer are not willing to pay the prices for the developed product that would ensure Fair Trade standards are meet within the value chain, then growth in this industry is considered as impossible. On the other hand, several handicraft markets are also characterized by the oversupply and the aspect of poor economic prospects, a factor that has been considered as the reasons why price variables can be viewed in the industry.

  • Conclusion

This report has clearly discovered that the aspect of fair trade Jewellery emerged as one of the responses aimed at tackling the discrepancies that have existed in the current global trade systems that is entirely based on the concepts of free trade. Fair Trade Jewellery offers practicable support directed towards combating the aspect of poverty and approaches that offer structural change on the unjustified trade relations (Child, 2015).

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The mainstreaming of Fair Trade Jewellery can in this case be depicted as the process of Fair Trade Jewellery economic actors developing approaches aimed at moving from a fully operation Of Fair Trade value chain to the increase of operation in conventional market value chain. In achieving the goals of mainstreaming, the introduction and inclusion of product certification is considered, a factor that opens up possibilities for value chains with other mainstream actors. Some of the challenges that the jewelers encounter in this industry include the, few consumers being in a position to pay the much required for the products.


Alvarado, J. (2009). Fair Trade in Mexico and Abroad: An Alternative to the Walmartopia?. Journal of Business Ethics, 88301-317. doi:10.1007/s10551-009-0287-6

Boyd, S. (2014). A Golden Opportunity. Corporate Knights Magazine, 13(2), 72-74.

Child, C. (2015). Mainstreaming and its Discontents: Fair Trade, Socially Responsible Investing, and Industry Trajectories. Journal Of Business Ethics, 130(3), 601-618. doi:10.1007/s10551-014-2241-5

Jeevananda, S. (2015). Effectiveness of Market Development Assistance Scheme In Handloom And Gems And Jewellery Sectors In India. Scholedge International Journal Of Management & Development, 2(8), 37-50.

PR, N. (2015, December 8). Singapore Jewellery & Gem Fair 2015: A Triumphant Chapter for International Fine Jewellery. PR Newswire US.

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Globalization Effects on the International System

International System
International System

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Globalization Effects on the International System



Globalization refers to an approach that engages people, business entities, companies and governments from different regions in freely interacting with each other in an effective manner. It is essential to consider the fact that the element of interaction between people from different regions is enhanced by particular parameters that are an international system. These parameters include information technology, international trade, infrastructures, engagement in business activities, the ideal of exploiting different resources from various regions and social media (Mehrabanfar, 2015).

These factors therefore remain the main elements that drive people from different contexts to cross borders with the sole aim of engaging in activities geared towards the promotion of a common approach to life. The second part of this paper therefore seeks to determine the manner in which globalization affects the key actors of an international system.

In particularly, this essay examines the way in which globalization affects the main actors in the international system. The essay does so through analysis and critique of the subject matter and not just by describing the topic, as well as through the use of pertinent real-life examples in illustrating the arguments made in the essay. Some of the key actors in the international system as far as globalization is concerned include people, national governments and multinational corporations that have their business operations in multiple countries globally.   

This essay also explores the topic further by analyzing the impacts and implications of globalization on different countries globally. Globalization as evident in the present day has largely been driven by policies implemented by countries in the international system which have served to open economies internationally as well as domestically (Zhang, 2015).

A lot of countries have espoused free-market economic systems that have significantly enhanced their productive potential and brought a wide range of opportunities for global trade and investment. In addition, countries have negotiated considerable decreases in barriers to trade and have created transnational agreements that are aimed at promoting trade in services, goods as well as investment. This essay will also clearly describe how this is affecting the main actors in the international system in globalization today. 

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How Globalisation Affects the Key Actors in the International System

According to Mehrabanfar (2015), the process of globalization has been determined to influence different human development, cultures, and environments, including political and economic systems. It is essential to understand the process of globalization and its effects on the key actors within an international system.  This gives a clear depiction of the manner in which the world is constructed by several changes in the social and economic lives of people (PP.24).

In this, it is therefore essential to determine that globalization is a powerful tool that enhances the course of the new worlds systems that represent the forces that are responsible describing the future of the planet. Globalization is in this case concerned with the economic, political, environmental, security, culture and health of different nations with emphasis placed in the status of different states (Qureshi & Jalbani, 2014).

It is however significant to consider that there are scholars who have different reactions in the interpretation of globalization, a factor that has seen some policy makers considering globalization as an essential element in the advancement of the world’s economy while other believe that this element places negative energy and serious danger upon the world’s economic systems (Baylis, John & Steve, 2001). In as much as globalization can be viewed as a contributor of conflicts, it has several benefits both at the state and individual levels.

Many observers allege that globalization is accelerating with these factors prevalent in the manner in which similar cultural practices have been created and the uniformity of markets.  It is therefore important to consider that globalization effects are very strong that they undermine the powers of international and national governance (Popa, 2014).

This element therefore assumes that societies are strongly connected in this dispensation as compared to the past and that change emanates from a single center that is then radiated outward through a uni-directional fashion (Nederveen, & Dasgupta, 2009).

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Impacts of Globalisation

There are several effects that emerge from globalization which impacts different economies of the world. The production of goods and services is affected by different elements of globalization. This has also seen the development of different approaches of production such as capital and other inputs and labor that are primarily dependent on the levels of globalization.

Additionally, competitiveness as seen in producing a good or service has resulted in the diffusion of technology that has resulted in the initiation of nations to other developed cities (Gaur, 2015). Having considered this, globalization is therefore ascribed as the force behind the efficiencies that have been experienced in affecting investment opportunities of different organizations within different nations and markets.

Investments are known to play a central role in technological transfer, formation of global investment and in industrial restructuring which have an effect in the national level (Luković, 2015). New technological advancements in different economies additionally remain an essential factor in globalization that stimulate competition and enhances the diffusion of nations through foreign direct investments.

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International Commercial Transactions

One of the implications of globalization is increased rise of international commercial transactions that have opened opportunities for cross border trade on both small and large scale.  Over the past, it is essential to consider that it was challenging to find developed economies engaging in trade with the developing countries. This was centrally because different economies were considered as superior to others, a factor that saw this economies gain big percentages in trade.

According to Francioni, Musso and Vardiabasis (2013), the manner in which organizations engage in international commercial transactions as that has seen the inclusion of electronic buying and selling depicts the manner in which globalization has affected trade in the entire world, a factor that depicts the impact of globalization (PP.240).

It is therefore essential to note that the perception of international commercial transactions also known as international trade can be viewed as an approach that offers a variety of business services to different market on both a small and large scale (Bourguignon, 2016). This concept has therefore been changed with the advent of technological developments, availability of social media, infrastructural development including the development of information communication technologies.

This has therefore transformed the manner in which people conduct their business functions and other affairs that relate to trade (Vadlamannati, 2015). Improvements in the way individuals move from one area to the other have also been enhanced by globalization, a factor that has seen the elimination of various barriers in the market.

Globalization as detailed by Faulconbridge (2008)  has provided a clear guideline in the manner in which people from different regions integrate across different markets with each other through the development of an established law system also known as commercial law (PP.185).   This according to the author depicts the fact that there are procedural laws that have been created as a result of globalization that regulate the levels people can interact for the sole purpose of ensuring that safety and the protection of the wellbeing of these parties that engage in international and commercial transactions are adhered to the latter.

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It is however essential to consider that Williams and Martinez (2012) believe that this approach does not create the element of free trade since it provides some restrictions through the developed laws that hinder international commercial trade to occur.

In as much as the element of commercial law remains paramount in regulating trade, it is essential to consider the fact that free trade opens different boarders that allows trade interactions and different activities that promote these practices (PP.79). In my view, I however believe that commercial laws are essential since they specify certain activities that promote trade and the manner in which individuals interact in this process.

States have additionally turned out to be interdependent through the implementation of free-trade that has seen the opening of national boarders for the purposes of trade.  As a result of globalization, companies now have an easier way of setting up branches and different production sites in other nations where the market conditions remain favorable for a company (Westermann, Rehbein, & Fort, 2015).

However, it is significant to consider the fact that these have seen an increase in competition between different nations considering the fact that each of them would want such establishments made in their own economies. The element of free-trade has therefore seen countries turn out to be dependent on one another in order to present attractive markets for multinational corporations that seek to expand their operations in different markets.

Free-trade was to develop market conditions that would define the manner in which different states would conduct trade freely and with the presentation of equal opportunities with other states (Andreeska, 2015). However, the achievement of this objective was met by different reactions that alluded to the fact that such terms may not favor all nations in an equitable manner. This is because some nations had the capacity to export cheaper raw materials and labor as compared to others and are likely to be trade-partners.

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In this case, some countries needed to implement quotas and tariffs to protect their national economies in dealing with this element. This has therefore seen several states affected by other states tariffs and quotas in effectively trading in the markets (Seitan, 2014). This therefore implies that  some states may not be in a position to trade particular goods with other countries considering the fact that meeting these requirement’s may turn out to be detrimental to their functions.

Globalization has in this contemporary time made international trade easier by incorporating online business transactions, a factor that has made it simpler for people to transact (Schelhase, 2008). Commercial laws have therefore been enhanced to cover several aspects within the business spectrum that involves the transfer of funds, accounting, marketing, operational management, book keeping and sales.

It is however essential to consider that the undeveloped nations that may not have access to internet as a result of various factors such as the lack of resources and underdevelopment also have the opportunity to interact with the traders from different regions through enhanced approaches of movement that involve different transport modes (Castro Pereira, 2015). These modes have therefore made movement. Globalization has impacted the transport modes with this making it easier to move from one region to the other without difficulties a factor that impacts international trade.

It is also essential to determine that an essential role was also played when various Inter-Government entities (IGOs) gained significance in the element of globalization. Before the advent of globalization, several states were in pursuit of approaches aimed at promoting their national interests. This therefore saw states primarily concerned with their own interests and safety that developing a global approach to security (Antonelli, & Fassio, 2016). This clearly indicates that states were primarily concerned with their own ways of dealing with their problems at a state level rather than inn an international level.

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Currently, it is essential to establish that issues and challenges have escalated with these affecting states on a global level, a factor that has seen several states unable to protect its citizens (Schelhase, 2008). States have therefore been incapacitated in dealing with these issues by their own means, with this therefore requiring the development of collective action plans with other states through the IGOs.

Through a joint effort, states are in a position to relinquish their sovereignty to a single body that collectively manages the decisions of other member-states (Taylor, It is essential to consider that these joined sovereignty never existed, a factor that gives the impression that states are obligated to comply with the laid down decisions by the majorities and are in most times affected by such actions considering that this may be against their governance approaches.

States therefore depend upon the aid of other nations who are partisans of the decision making process with the aim of achieving their goals as depicted in the case of UN Security Council. This entity therefore ensures that member states needing to pass resolutions depend on their parameters (Kilic, 2015). Considering the fact that this entity holds veto-powers, they have the capacity to stop a state’s resolution even in the event that these resolutions are passed in their favor.

Another implication that has been noted in these IGOs and the manner in which they relate with members-states remains in the laid down obligations to act under defined circumstances (Verma, & Singh, 2010). In accordance to this, member states of NATO as agreed under Article 5 of the North Atlantic Treaty who lodge armed attacks against other states that reside within North America or Europe are bound to have an attack against them.

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It is also passed that in the event of such armed attacks each of the member-states in exercise of the rights accorded to them recognized by Article 51 of the Charter as described by the United Nations will take full responsibility in assisting the parties affected by taking part in actions as deemed fit that include the use of their forces in order to restore and ensure the security of such a nation (Bassens, & van Meeteren, 2015).

With this example it is therefore essential to note the manner in which member states belonging to NATO remain dependent on one another and are in most cases affected by the happenings in other member states (Bassens, & van Meeteren, 2015). This therefore ensures that the United States of America is required as described under Article 5 of this treaty to send its military forces to assist the European member states when attacks are lodged against them in as much as the US has nothing to do with the issues that arise and are not closer to the attacked states in any way.

This factor therefore implies the fact that in this contemporary society, events have turned out to be borderless, placeless and distancless, a factor that ascertains the fact that states remain unaffected by issues that arise in other nations but may be affected in a way (James, & Steger, 2014).

Another element that can be noted in the manner in which smaller numbers of nations my impact the whole world is in relation to the Organization of Petroleum Exporting Countries (OPEC). In the year 1970, OPEC raised the prices of oil considerably which affected many countries in the world. During this period, OPEC only had 12 member states with their decisions held intact with more states.

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It is also essential to consider the fact that it is not only IGOs and other member states that increase the dependence of other states on others. A Trans-border trade connection that occurs between different locations in different nations has also seen a similar impact as a result of globalization.  It is therefore critical to determine that the developed bodies that are given the mandate of run these connections are the makers of decisions with their constituent regions taking the required actions which then impact the manner in which these systems are run globally (James, & Steger, 2014).

This has seen the development of regulatory bodies such as the Assembly of European Regions and the European Union’s Committee of the Regions that influence the manner in which trade is conducted in member-regions. This has therefore seen states turn out to be independent not by their own actions but due to the regions that form part of a regional organization.

On the other hand, it is also significant to note that another development that has been spurred by the element of globalization is in relation with the interconnections of different states within the modern international systems (Schaeffer, 2009).

This has therefore seen the unity of private sector institutions and other entities such as the International Federation of Stock and Exchange that were incorporated in 1961 with the sole purpose of making decision and taking the required actions in addressing issues such as food pricing and credit rates that have significantly impacted different economies over the world.

It is also important to consider the element of fusion of national capital markets and the development of integrated global economies as another factor that is augmented by globalization in the development of interdependent states (Schaeffer, 2009).

Considering the fact that states do not have control over their own economies, it is essential to point out that they primarily rely on a collective approach to governance by different bodies for instance International Monetary Fund (IMF) and the World Bank so as to develop effective approaches of regulating the international financial markets.

These dependencies have seen different member-states provided with protection in an even where their economies are troubled with financial difficulties. It is therefore essential to consider the fact that the element of interconnectedness may also have its negative effects as this can be determined in the recent economic crisis (James, & Steger, 2014).

This therefore gives an impression of the fact that the advent of a global economy may increase the risks of states being affected by different issues which may begin in a single country and stretch to different nations with this affecting the manner in which functions are conducted.  Additionally, a countries economy may also be affected as a result of this crisis.

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It is therefore essential to determine that the element of globalization has overally impacted the international systems in a significant way by making states turn out to be interconnected through trade and independent.  This therefore determines the fact that this contemporary society is not concerned with the independence of a single state but takes a collective responsibility in uniting the whole states for different purposes (Nederveen, & Dasgupta, 2009).

The issues that affect different nations are therefore solved through a collective approach rather than the engagement of individual states in finding solutions to those issues. It is significant to point out to the fact that intergovernmental organizations, global financial institutions, and the private sector organizations are the products of globalization and take the roles of solving the challenges that different economies and nations face in the development of a global market.


Globalization refers to an approach that engages people, business entities, companies and governments from different regions in freely interacting with each other in an effective manner. It is essential to consider the fact that the element of interaction between people from different regions is enhanced by particular parameters that include information technology, international trade, infrastructures, engagement in business activities.

The ideal of exploiting different resources from various regions and social is therefore imperative to consider the fact that one of the implications of globalization is in its increased rise of international commercial transactions that have opened opportunities for cross border trade on both small and large scale.

Over the past, it is essential to consider that it was challenging to find developed economies engaging in trade with the developing countries. Globalization has therefore seen States turning out to be interdependent through the implementation of free-trade that has enhanced the opening of national boarders for the purposes of trade (Nederveen, & Dasgupta, 2009).

As a result of globalization, companies now have an easier way of setting up branches and different production sites in other nations where the market conditions remain favorable for a company. Additionally, globalization has also in this contemporary time made international trade easier by incorporating online business transactions, a factor that has made it simpler for people to transact.

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Impacts of FDI on Employment in China

Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI)

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Impacts of FDI on Employment in China


Foreign Direct Investment (FDI) has been defined by different scholars, with the common definition referring to an investment where a firm gets acquisition and control over another foreign firm or such a firm set up its subsidiary in another foreign country. Taking many different forms, such investments could include mergers and acquisitions, intercompany loaning facilities, reinvestment of profits in foreign countries and development of new facilities overseas.

A clear distinction is drawn between FDI and portfolio investment, which involves the investments in the security of another country, either equity or debt securities (Sornarajah, 2011).

Due to the rapid changes resulting from globalization, better opportunities arise in the FDI arena. Foreign investments have flowed to different countries and had great impact on these countries’ economy. Developing countries, for instance, have endeavored to set policies that are competent and able to attract foreign investors. China, in its developing stages, managed to conceptualize the Reform and Opening Policy as early as 1978, a move that started revolutionary policy guidance for Foreign Direct Investment in China (Hale & Long, 2011, p. 16).

Since its beginning, FDI in China has undergone rapid developments.  Within 1979 and 1986, a total amount of about $8.304 Billion was transacted as a result of FDI with the main players being Taiwan, Hong Kong and Macao (Chen, 2011, p. 93). This good trend was distorted from 1987 through 1991, when China’s legal system was unsound and incapable of attracting foreign investments

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Mainly referred to as the Rapid Development Stage, happened between 1992 and 1997 after China embarked on their socialist market economic system, hence improving tremendously the opportunities for investments. During this time, China’s FDI hit the highest at $196.7 Billion.

Though the following years witnessed a dwindling trend in FDI, this changed in 2001 to the present, due to China’s involvement in the World Trade Organization and its conducive environment that attracts investments internationally. Mostly, the main sectors which China concentrated on to stabilize their FDI included technology and telecommunications, banking, retail and wholesale growth.

Other than this, China promulgated new government policies that were business friendly. By the year 2011, the country had invested in over 400,000 enterprises that were internationally funded (Deng, 2013, p. 213). Apart from the inflow on FDI, there was massive effect of such investment to the indigenous firms in China. Such effects are referred to as spillover effects, which are usually divided into monetary and demonstration effects.

Due to their technological advancements, multi-national firms are competent compared to the local companies hence giving excessive competition grounds. As a result, local companies seek better managerial skills, technological equipment and production efficiency to meet the standards of the multinational companies (Zhang, et. al., 2016, p. 180). Despite being advantageous, this kind of competition between firms can be detrimental on the local firms, where multinational companies using technological advancements and productivity snatch market shares from local firms.

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There are various forms of FDI in China, including; equity joint ventures, wholly foreign-owned enterprise, joint exploration, FDI shareholding and contractual joint ventures. As its name may suggest, equity joint ventures are owned jointly by foreign and Chinese companies, individuals or other governmental organizations. Both companies manage the company together, hence sharing profits and risks together on determined scales as per capital contributions.

Contractual joint ventures, on the other hand, are somewhat similar to the equity joint venture, only that obligations and duties arising on the parties are laid off in a contract. Wholly foreign owned refer to foreign companies, individual and enterprise investments who establish themselves in China. In this scenario, all capital derives from such foreign firms. FDI shareholding involves the purchase of equity by foreign investors, hence leading to foreign invested enterprise.

Joint explorations, on the other hand, refer to various economic cooperation on the international arena, usually divided into exploration, exploitation then production. In many instances, joint explorations venture into exploitation of natural resources (OECD, 2013, p. 53).

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As earlier mentioned, FDI has a spillover effect. Particularly, FDI ensures creation of jobs, explained through the greenfield and brownfield analogies. Greenfield analogy can be explained as an investment that creates new production lines in host countries, through starting of a new company. Brownfield investment, in contrast, involves overseas mergers and acquisition. Due to its nature, brownfield investments cannot be certainly denoted as job openers, considering no new companies are created.

Another effect of FDI experienced in China is the crowding-effect, considering many multinationals are investing in the country. Local firms are overly pressurized to exhibit good performance, or risk winding up. This leads to severe pressure on employees. The inter-dependency between FDI and employment is usually affected by diverse variables, including population, exports and growth of domestic economy (Michael, 2013, p. 24).

Literature review

In the recent years, China has been trying to support the foreign direct investment to enhance its purchasing power via wages and to create job opportunities. Through understanding factors that impacts on employment, particularly those associated with FDI, China can realize its potential expansion of its productive sector and the required production innovation techniques to improve its economy.

It is because FDI can create jobs through the direct hiring of individuals for the new industries. Moreover, the enhanced aggregate domestic employment via various types of jobs created, income distribution, wages levels, and skills transfer will result in indirect effects. The increased FDI inflow to China has led to the creation of many job opportunities, and as a result, many people have been employed (Hu, 2011).

Therefore, FDI has positively impacted on employment in the long-term since individuals who could have been unemployed, now can have jobs. However, since FDI bring new business culture and technology, its influence relies on the interaction between the growth of the productivity, labor specialization, and output growth.

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FDI has led to the improvement of technology, skills, and trade in the long-term in China. Moreover, it has facilitated adverse effects on jobs and wages as realized in China in the short-term. The findings in China in both secondary and tertiary firms for the period 1985-2008 indicated that FDI growth led to the creation of employment, enhanced skills and technology, and trade for the period.

FDI needed high-skilled personnel to work in their organizations that had sophisticated technologies, hence, necessitated an individual to acquire skills that matched FDI requirements, making one to have improved skills in the end. However, in situations where there was a bidirectional linkage between employment and FDI, in the short-term, FDI led to the loss of jobs because of displacements of workers, according to Liu (2012).

Furthermore, on one hand, new technology made industries more competitive that allowed them to employ more employees and to grow. On the other hand, new technology led to decrease in demand because of substitution of many low-skilled workers by fewer high skilled employees. Therefore, new technology had both merits and demerits attributed to job creation and employment.

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Recent empirical evidence studies show that China should not expect to have any job opportunities despite the benefits she gets from FDI (Zia & Rizvi,2011). It is because elasticity growth associated with employment in China is extremely low, which makes employment enhancing policies be priorities. Initially, when foreign investors and their companies came, many people were employed, but over time the rate of absorption became low. T

he new companies were able to attain the required number of employees in their organizations with time, meaning new people could not be employed leading to low elasticity growth associated jobs.

When China is studied using the two-sector dual economy model to show the influence of foreign investment on domestic capital accumulation and underemployment, it shows that foreign investment lower manufacturing sectors in the long-term. The manufacturing sector decline because some of the local companies were not able to compete adequately with foreign organizations associated with FDI as they had a lower level of technology and skills.

FDI also had a large effect in the high-wage manufacturing firms than on a one-for-one basis and crowds out domestic capital. The study of FDI effect using analysis of panel information to find labor demands roles for white and blue collar employees showed that FDI had significantly positive outcomes. However, the positive effect, especially with the blue-collar jobs, declined with the rise of the skilled intensity of manufacturing companies (Liu, 2012).

According to Duan (2011), labor market, market size and market potential, clustering and cluster, macroeconomic policies, openness, and scientific research level account for the reason of determining the FDI location. Labor productivity and labor costs also influence FDI location, which indicates that improved workforce skills level attracts FDI. Thus, FDI favors high-skill workers because they are the ones mostly likely to get employed in the new job markets, and makes low-skill workers liable to lose their employments due to replacement.

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Ownership that is so crucial in the creation of the jobs affects employment in China. Research indicates that the major reason for inadequate employment creation is because the state own enterprises absorb employees quickly than the private sector. The low absorption rate is attributed to the fact that both joint ventures and foreign-owned multinationals that are supposed to employ many people belong to the private sector.

Thus, it means that the private sector has a higher capacity of creating more employment opportunities when compared to the state-owned enterprises (Sjoholm, 2011). In a similar analysis of employment, Hale & Long (2012) found out that FDI indirectly and directly impacts jobs. According to them, FDI can directly increase jobs and indirectly lower jobs by improving productivity levels indirectly and supplanting domestic investment. However, when the effects of the two are combined, FDI has significant positive influence in China.

Liu (2012) analyzed the effect FDI has on employment creation in China as far as manufacturing companies are concerned. Liu relied on the industry-level data in the Chinese manufacturing industry for the period 2000-2009. Also, Liu presented an analysis of direct and indirect job impacts. The findings indicated that both the private domestic industries and FDI have higher employment growth than the non-private domestic companies in China.

Furthermore, firms with other types of ownerships had less advantageous features than the FDI, in particular, their access to the export market, when the cross-ownership comparison is done. The conclusion was that FDI had led to employment creation in the Chinese manufacturing sector.

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The impact of FDI on employment may not be beneficial to China. Hu (2011) illustrates that when crowding-out is taken into consideration, the crowding-out only becomes significant when foreign multinational enterprises focus on the recipient nation’ market. It is because the FDI influx may bring in more pressure on domestic firms. Moreover, the external investment requires higher efficiency and better technology, which implies that it will only need fewer employees than before, making the crowding-out effect of FDI lead to more workers being laid off as a result of more of the domestic companies going bankrupt.

Zia & Rizvi (2011) indicate that FDI has more favorable when China faces economic crises. It is because FDI has an advantage over other investments programs such as loans or portfolio as it often prove to be more resilient in times of economic crisis. The other types of investment are subject to large reversal when there is a financial crisis. Thus, economic crisis presents a major challenge to employees and employment.

Workers who are employed in other types of investment are more likely to be laid off because their organizations may go bankrupt, which is unlikely of FDI that is more resilient and stable in an economic crisis. In this scenario, FDI positively impacts on employment in China because workers are not likely to lose their jobs due to the economic crisis.

FDI has also led to the loss of employment among people in China, according to Zia & Rizvi (2011). The increased competition associated with FDI’s international corporations has pushed out some of the more productive local business enterprises as they are not able to compete. It is because the local business enterprises have lower technology and skills in most cases than the FDI’s companies making them less favorable to compete in the market.

Therefore, the increased competition brought in FDI has led to the loss of jobs, rather than creating. Moreover, it illustrates that FDI does not contribute to local economy development because the increased competition associated with FDI leads to people being laid off in local business ventures.

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The amount of FDI in China increased by 225.20 USD HML between December and February 2016. This is according to data the ministry of commerce of the people’s republic of china. The country averaged 416.01 USD HML between 1997 and 2016 hitting an ultimate high of 1262.7 HML in December 2015.

Labor is affected by a variety of factor in an economy both from either side of the border of the economic space of a country or an economy.  Empirical research has given much more attention to the effects of trade on labor markets than to the impacts of FDI on employments. Analysis on the effect of FDI on employment is thus more complicated.

A large number of studies have been conducted that try to establish whether OFDI substitutes or complements domestic jobs and this is split into two. In the home employment effect of foreign direct investment: from empirical results, China’s OFDI contribution to the employment of the country is a noticeable difference in the studies conducted over time. It was found that FDI  can stimulate exports thus, in turn, achieving more employment.

These multinationals,  in the process of processing trade of foreign investments, source most of their materials from the domestic markets. This are raw materials, spare parts and other half finished products.  This increases the demand for these goods in the domestic market hence raising the employment in the different industries producing them and those related to them.

However, with the surplus of china’s labor being serious and FDI still being at a start stage, many investments belong to the defensive industry. These investments cause an increase in the demand of domestic capital and goods thus edging out domestic investments from the market.

Research also shows that china’s FDI  does not influence employment in the primary industries but gives a significant effect in secondary and tertiary industries. With the composition of capital in the tertiary industries being comparatively small,  labor is higher compared to other industries at similar investment levels thus FDI  achieving more influence in tertiary sectors.

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Research done on the effect of FDI on the home country have elicited mixed results. Research dealing in detail with the employment effect of FDI found a substitution effect between a foreign subsidiary’s activity and its parent’s employment. These studies have majorly concluded that change mainly occurs between countries with comparable endowments. This thus implies that low-wage countries make better substitute among themselves than.

Studies indicate that American multinationals are employing vertical FDI seem to be reducing employment back home compared to production by transferring labor intensive stages of their production processes to their affiliates in developing countries. Other studies have concluded that labor substitution is more likely to take place when factor proportions are different in various locations and vertical FDI prevails. The second group of research has found that the complementary effect prevails, this noted a positive effect on employment due to an affiliate activity in the host country.

The main reason behind this is that the opportunity to invest in a low-cost host country could increase the firm’s competitiveness, promote its use of economies of scale, and reduce its costs, which may lead to an increase in home-country employment.

This brings the picture of a scale effect dominating over a substitution effect for the parent country’s firms and the parent country’s employment. In the North American car industry, studies have found that jobs in Japan were growing as a consequence of investing abroad. This is explained as the result of allocating labor intensive production to developing countries thus increasing supervisory and ancillary employment to mainly service foreign operations.

According to Hu (2011), the two factors affecting employment are economic development and capital stock, with capital stock encompassing both domestic and foreign FDI.

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The third group of studies shows that outward investments can increase the demand and wages for skilled labor in both the parent and host countries. This is attributed to the differences in labor demand in both countries

Nunnenkamp, Bremont and Waldrich (2011) posed the question on whether foreign direct Investment contributed to employment creation in Mexico. An analysis of FDI and employment data covering manufacturing firms in Mexico were used. From this, they estimated the dynamic labor demand functions for blue and white collar workers, including both FDI and its interaction with major industry characteristics.

Using the GMM estimator proposed by Nunnenkamp, Bremont and Waldrich (2011) they accounted for the relatively short time dimension of the panel data (1994-2006). It showed that FDI had a positive though the quantitatively modest impact on manufacturing employment in Mexico. This was in contrast to a widely held view applying to both white collar and blue collar jobs.

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Hu (2011) found that it is very difficult to assess the outcome of FDI on employment in European nations mainly due to the different stages of economic development in the countries. According to him, the first stage of FDI  is characterized by elimination unproductive jobs giving way to new productive jobs.

This is mainly due to the restructuring of jobs by extensive mechanization and automation leading to loss employment while the organisations became better and more profitable. From these, the multinationals create a better and more productive labor force.  This process of creatively destroying labor ends up creating a more positive effect on employment. Finally, it is found that the research shows that FDI is not a golden wand to the creation of jobs.

 Liu (2012) using data collected between 1986-2010, concludes that that the effect of FDI on employment was positive before 1996, but the effect was not noticeable after 1996.

According to established theory, the activities of affiliates can be related to the motives of FDI, namely efficiency seeking, market seeking and strategic-asset-seeking flows. The impact of these types of FDI on trade patterns are explained by distinguishing four kinds of trade linkages between the parent firm and her affiliates:

  • The substitution of former exports through FDI
  • Growing (re-)imports of goods and services produced abroad
  • FDI associated exports of goods and services
  • FDI induced exports of other product lines neither generated by the foreign affiliates nor exported earlier by the parent 

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The overall impact of FDI on domestic employment is the sum of negative (export substitution, re-imports) and positive effects (associated and induced exports) and can be tested only empirically. Any distinction between direct and indirect FDI is justified only if their trade linkages differ. In a broad view, the literature reviewed shows that MNE (Multinational Enterprises) employment can promote growth and poverty reduction in host countries in four ways.

(i) Multinational Enterprises job has a direct and indirect impact on domestic employment: this is through direct employment and indirect employment through forward and backward linkages in the local firms.

(ii) Multinational Enterprises employment boosts wages in host countries:

A number of studies have shown that Multinational Enterprises pay higher wages than local firms even after controlling for firm and worker characteristics. The presence of multinationals will also at times cause wages to be higher in industries and in provinces that have a higher foreign direct investment

(iii) Multinational Enterprises employment fosters technological transfers:

Through labor turnover, technology gets diffuse into the host countries as domestic employees move from foreign firms to local companies.

(iv) Multinational enterprises employment enhances labor force productivity in host country:

Several studies have shown that workers in foreign-owned enterprises are more productive than workers in domestically owned enterprises.

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Time series and AUTOREG process in SAS were used to access historical association between the inflows of FDI and employment in China. Since, dependent and independent variables are time series data, model error has a significant probability of not being independent based on time   The AUTOREG procedure measures and predicts linear regression for time series in the event that errors are Autocorrelated.

Dependent and independent Variables

As indicated early, FDI has led to crowding-out influence on employment, as such an essential indicator of job opportunities. Besides FDI, various variables may impact employment including GDP, interest rates and wages. Some of the components of GDP include government expenditure, consumption, value of net exports and investment (Mankiw, 2012). The thesis uses China’s Statistical Yearbook that has FDI as an investment element.

For that reason, the assessment was performed using GDP values from this Statistical yearbook and provided values of GDP subtracted with FDI.  The results were then utilized in testing the association between GDP and employment. For easier understanding, model outcomes of GDP are obtained from Statistical Yearbook of China. The estimates of the model are similar, with same independent variables under the requirements of alternative model. The model outcome of GDP with no adjusted FDI is demonstrated in analysis section.       

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Moreover, since China’s FDI information from World Bank beginning in 2005 demonstrate considerably amounts in comparison to Statistical Yearbook, however, employment and GDP are similar in these sources, models were evaluated using FDI and other variables from World Bank and Statistical Yearbook respectively. The results are demonstrated in table 1.

Table 1: Chinese National Economy Data

    YearEmplo yment (100mi llion)    FDI  FDI ˄World Bank˅    GDP  GDP- FDI  total wageintere st rate for depos itsintere st rate for loans  Exchan ge rate
19854.987319.5616.592943.0 72923.5 1430.9 18.287.923.2095
19865.128222.4418.752816.2 32793.7 9444.7 99.367.923.7314
19875.278323.1423.143290.2 93267.1 5504.1 39.367.923.7314
19885.433431.9431.944124.0 94092.1 5620.7 310.8013.323.7314
19895.532933.9233.934113.1 14079.1 9622.1 514.9419.264.2088
19906.474934.8734.873695.7 13660.8 4563.7 011.5211.165.2352
19916.549143.6643.664162.9 64119.3612.8 89.009.725.4234
19926.6152110.0 8111.564739.0 54628.9 7677.2 39.009.725.8166
19936.6808275.1 5275.156345.6 66070.5 1844.5 612.0612.245.8210
19946.7455337.6 7337.875906.2 75568.6782.8 813.8614.048.5024
19956.8065375.2 1358.4927584.4 27209.2 1966.4 913.8614.048.3351
19966.8950417.2 6401.88904.2 78487.0 11076. 2912.0615.128.3290
19976.9820452.5 7442.379874.0 69421.4 91161. 116.6610.538.2700
19987.0637454.6 3437.5110463. 3210008. 691228. 046.668.018.2700
19997.1394403.1 9387.5311018. 7410615. 551324. 662.886.218.2700
20007.2085407.1 5383.99311940. 6311533. 481324. 632.886.218.2700
20017.3025468.7 8442.4113183. 5612714. 781475. 862.886.218.2700
20027.3740527.4 3493.079 76614567. 7914040. 361649. 112.795.768.2700
20037.4432535.0 5494.568 47116519. 1615984. 111853. 642.795.768.2700
20047.5220606.3 0621.080 4319462. 718856. 42129. 993.606.128.2700
20057.5825603.2 51041.08 69423208. 3322605. 082554. 223.606.128.0757
20067.4978630.2 11240.82 03628471. 1327840. 923101. 644.146.397.8224
20077.5321747.6 81562.49 33536166. 735419. 023998. 094.416.397.3714
20087.5564923.9 51715.34 6546083. 95451605147. 095.587.476.8565
20097.5828900.3 31310.57 05351082. 3850182. 055900. 705.587.476.8227
20107.61051057. 352437.03 43560602. 1559544. 87111. 574.206.146.6469
20117.64201160. 112800.72 21973453. 3972293. 289455. 835.006.606.3405

Table 2 Chinese National Economy GDP Disaggregated Data

Unit (100 million US$)

  YearGross Domestic Product
household expendituregovernment expenditureGross capital formationNet export

Data Source: China statistical yearbook.

Table 3 Chinese Economy Primary Sector Source Data

Unit (100 million US$)

YearEmployment (100 million)FDIGDPGDP-FDITotal Wage

Data Source: China statistical yearbook.

Table 4 Chinese Economy Secondary Sector Data

Unit (100

millio n US$)

YearEmployment (100 million)FDIGDPGDP-FDITotal Wage

Data Source: China statistical yearbook.

Table 5 Chinese Economy Tertiary Industry  Data

YearEmployment (100 million)FDIGDPGDP-FDITotal Wage
Data Source: China statistical yearbook.    

Unit (100 million US$)

Model outcome of industry with respect to GDP without FDI are indicated in table 6

Table 6: Chinese National Economy Normal Least Squares Results

The AUTOREG Procedure

MSE0.15224Root MSE0.39018
Durbin-Watson0.7275Regress R-Square0.8492
  Total R-Square0.8492
VariableDFEstimateStandard Errort ValueApprox Pr > |t|

Additionally, wages influence employment. A number of studies have assessed the connection between wages and employment. Wages cannot affect employment, in other words, reducing real wages in not useful to increase job opportunities. On the contrary increased job opportunities do not affect wages. When job opportunities increase, it implies that increased demand while reducing real wages. Interest rates also affect employment.

For instance, a decrease in interest rate on deposit means that individuals will deposit less hence promote consumption in households while promoting production and recruitment as the market will require additional employees. In contrast, when there is a reduction of interest rate on loans, producers will borrow from banks at reduced costs thus assist in expanding production and a nation will need extra employees.

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Sources of data

In this study, to assess the connection between FDI and employment in China, eight independent variables were used including wages, FDI, government expenditure, consumption, net exports, investment, interest rates for loans and deposit from 1985 to 2011.

In china, the Reform and Opening Policy was introduced in 1978, a period when FDI started to flow. Nonetheless, as a result of inadequate information on FDI, interest rate for deposit and loans, wages while ensuring that independent variable , data was collected from similar source as well as period- 1985to 2011.When it comes to statistical analysis, three major industries in the economy of China, information on four elements of GDP and interest rates for loans and deposit was not available.   

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Additionally, in the analysis of three major sectors; GDP, FDI and wages were used as independent variables. Information on industry analysis was available for 1997 to 201. And for national economy and industry analysis dependent variable was similar – number of employed individuals, which was represented as 100 million employment opportunities.

Consequently, original Chinese information source FDI units, household spending, net exports, wages, government spending and gross capital are represented by 100 million US dollars. On the other hand, household spending, net exports, wages, government spending and gross capital are represented based on Chinese currency RMB. To ensure that there is uniformity in the information, exchange rate for RMB to USD from 1985 to 2011 was employed to convert RMB to 100 million USD. The interest rates units are expressed as a percentage.                           

Owing to the fact that each industry has various units/sectors, the primary, secondary and tertiary data values are the totals of every sector in each industry. The primary sector comprises of forestry, agriculture, fishing and animal husbandry while the secondary industry involves manufacturing, mining, supply of water, gas, and waters. Addition, tertiary industry represents other sectors not in the primary and secondary industries.

Some of these sectors are storage, transport, information dissemination, hotels and catering; realtor, scientific research and so forth (China Statistical Yearbook).For that reason, the useful data for primary, secondary and tertiary sectors, and FDI information and wages were estimated.  GDP information is collected from China’s yearbook. Information for the China’s economy is illustrated in Table 1 and Table 2. Table 3 presents primary sector data and Table 4 and Table 5 represents secondary and tertiary sectors for the economy of china respectively.

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Data analysis was performed using AUTOREG procedure to demonstrate the connection between independent and dependent variables of employment. The modeling approach changes due to inadequate interdependence of data values as well as estimation error through modeling errors as  lag-one autoregressive, or AR(1), framework. According to the model errors in the analysis, it demonstrates cases of moderate level of skewedness for particular model while approximating normality in certain cases.

Much as heteroskedasticity of errors is not directly tackled, AUTOREG process id developed to deal with such issues; based on the fact that there is insufficient volatility in the information to assess the models.

Findings for the national economy of China

Based on the findings from the overall economy of China, it is evident that independent variables including household spending, FDI, gross capital, government spending wages, net capital and interest rates of loans and deposits have a significant relationship with employment- the dependent variable. According to estimations from Ordinary Least Squares, 84.95 percent of changes in employment can be forecasted by independent variables (table 6).

In addition, from Maximum Likelihood that involves adjusted Autocorrelated errors, there were about 95.89 percent changes in employment, which can be estimated by eight predictor variables (Table 7). The association between every independent as well as dependent variable is illustrated in Tables 6 and 7. Since the information is focused on 27 year while standard errors are huge compared to large datasets, estimations demonstrate that particular p-values are more than 5%.

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Using, Ordinary Least Squares, it is clear that there is a strong correlation between FDI and employment- with a p-value of 0.031. There is no evident association between dependent variable and household spending, FDI, gross capital, government spending wages, net capital and interest rates of loans and deposits (Table 6 With respect to Maximum Likelihood that comprises of the impacts of autoregressive lag-1 framework there is a negative correlation between employment and interest rates loans, because the p-value is more than 5% at 0.0616.            

While this is not a strong relationship, it indicates and provides areas fro further studies in future. Again, there is no correlation between employment and other independent variables (Table 7). First-order autoregressive or AR (1) model is utilized to address trends of high serial reliance within data. It is estimated at -0.9779 with a Pearson value of less than 0.0001. This suggests that independent errors associated with data for one time though closely associated. in other words, every year  independent error is closer to the previous year’s error.

Based on Maximum Likelihood and Ordinary Least Squares, the association between independent and dependent variables are not similar. In the Ordinary Least Squares, there is a strong correlation between dependent and independent variables (Table 6), this is because the p-value is at 0.031 while estimate for parameter at 0.00317. On the other hand, for Maximum Likelihood, there is no significant correlation between employment and FDI; however, there is a negative association between employment and interest rates for loans (Table 7), since the Pearson value and parameter estimates at 0.0653 and -0.0653 respectively.                                                                    

This variation is due to Maximum Likelihood put into account First-order autoregressive procedure and also the impact of independent variables that significantly affects parameter estimations of every predictor variable. This result indicates that putting into account autoregressive framework, the impact of FDI weakens while interest rates for loan demonstrate a significant influence on employment. Residual analysis is shown in Figure 6.

Residual analysis is important when it comes to measuring the variation between estimated and observed values for every year employment level. For employment- the individuals employed in China, every year’s residual is at -1 and 1 apart from 1988 to 1990. In other words, the observed and estimated values are closely, other than in 1988 t0 1990.                                                                       

According to lag framework, the probability of white noise reduces as the lag time increases, when the lag period increase, it becomes challenging to forecast employment level. The autocorrelation function is a trend of autocorrelation in a given time series at several lags while the partial autocorrelation function is the trend of incomplete autocorrelation in any given time series at different lags

Findings for primary, secondary and tertiary sectors of the economy of China

In the primary sector it is evident that 3 independent variables including FDI, wages and GDP have a significant correlation with employment. With Ordinary Least Squares estimation, 97.36% of difference in the employment is described by these variables as demonstrated in Table 8while Maximum Likelihood represents 97.39 percent of difference in employment (Table 9).

Since the data used is fifteen year data, it is intricate to achieve a small Pearson value, which demonstrates a positive statistical association. With regards to Ordinary Least Squares, there is a strong connection between employment and FDI as the p-value is at 0.001. In addition, the Maximum Likelihood, there is a strong relationship between employment and FDI because the Pearson value is at 0.005.

When it comes to secondary industry, 3 independent variable such as GDP, FDI and wages have a strong correlation with employment. The Ordinary Least Squares, 96.63 percent and Maximum Likelihood estimations indicate that 97.91percent changes in employment level can be forecasted by wages, FDI and GDP (Table 4.5 and 4.6). Much as the Ordinary Least Squares value indicate that there is a strong connection between employment and FDI since the Pearson value is 0.0007, there is a strong negative association between employment and wages with a p-value of 00187 and -0.000276 parameter estimates.

Again, Maximum Likelihood demonstrates a strong positive association between FDI and employment since the p-value is less than 0.05 at 0.027 and parameter estimates at 0.0000461. While the there is no statistical significance between employment and wages, Maximum Likelihood is similar to Ordinary Least Squares Figure 8).

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In the tertiary industry, there is a strong correlation between 3 independent variables- wages, FDI and GDP. Ordinary Least Squares results shows 95.16 percent of difference in the employment level, which is due to these variables while Maximum Likelihood demonstrates a 98.27 percent of change in employment level, which can be described by wages, FDI and GDP.

In Ordinary Least Squares values, there is a negative association between FDI and employment, because the Pearson value is greater than 0.05 at 0.0251 and parameter value at -0.002095. There is a strong negative connection between wages and employment with Pvalue and parameter estimation at 0.0264 and -0.001326 respectively. However, there is a significant correlation between employment and GDP since Pearson value is at 0.0046 and parameter estimate at 0.00312.

Based on Maximum Likelihood outcome, the parameter estimations demonstrates a negative correlation between employment and FDI because the p value is more than 0.05 at 0.0251 and strong association between GDP and employment with a p value at 0.0604.  The strong negative association between employment and wages in the Ordinary Least Squares results is not significant in Maximum Likelihood results (Figure 9).

To guarantee that these correlations are precise, further estimations were performed by subtracting FDI from GDP, rather than using GDP information from Chinese Statistical Yearbook to establish the reported association between employment and independent variables of primary, secondary and tertiary industries of China’s economy.

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These results are similar to the above results. Nonetheless, the new outcomes will assist in verifying the validity of previous relationships. Furthermore, FDI information collected from Chinese Statistical Yearbook were evaluated against those from World Bank to guarantee that past outcomes are in line with other sources of information. The results of primary industry demonstrate that with careful consideration of autoregressive system, the strong correlation between employment and FDI is still strong.

This confirms that without doubt FDI has a positive influence on employment in the primary industry. In the secondary industry, Ordinary Least Squares and Maximum Likelihood estimates demonstrate a similar correlation between independent and dependent variables, therefore, GDP as well as wages affect level of employment, where GDP has a strong relationship while wages has a negative correlation.

In the tertiary industry, the negative association between wages and level of employment is not statistically significant in Maximum Likelihood; GDP has a strong correlation on the employment in Ordinary Least squares; and GDP is closely a strong independent variable of employment in Maximum Likelihood. Apparently, FDI has a negative impact on employment in the tertiary industry. For the general economy of China, there is no strong correlation between FDI and employment; and there exists a strong negative association between interest rates on loan and employment.


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