Compare and contrast the main micro and macroeconomic theories of foreign direct investment. Referring to your home country appraise which of these theories most accurately explains the pattern of foreign direct investment in recent years.

ABSTRACT

With the readings and research done, I conclude that there is a need for agreement with the theoretical sphere of cross national readings. The theoretical focus of such intellectual behaviors has managed to mirror the multidisciplinary character of the subject. As for now, the most considerable contributions to the knowhow of the subject can be matched to the global economics, in the global finance and the global business literatures. The increase in focuses and the range of experimental studies that are to be found in these literatures, shows the treasure of knowledge which may be credited to the investigation of inter-national business related actions and processes attempts to explain many of the prevailing theories amongst these literatures mentioned. Offerings to the macro level of study can be established in the structure of the theories of global trade. On the other hand, the theories relating to the micro economics take on the business as the degree of investigation and thought is given to both the FDI decision process and the way it is pursued by companies in internationalization all over the world.

Based on the various theories that have been presented along the essay, I have done an analysis on what route India has approached in order to successfully attract FDI even though its trade restrictions were quite severe and not 100% of FDI was allowed in most of the areas.

MACRO ECONOMICS AND MICROECONOMICS

The word has been derived from the Greek prefix “micro “which means “small” & “economics” is the branch that evaluates how the sole sections of the economy, which may be the domestic and the firms, make decisions to assign restricted resources, typically in markets where goods or services are that are being bought and sold. Microeconomics examines how these decisions and behaviors affect the demand and the supply for commodities and services, which examines prices, and how prices, consecutively, decide the demand and supply of commodities and services. The microeconomic theories measured focus principally on technology seeking companies as the opportunity cost of not internalizing awareness is most here.

This is in dissimilarity to the macroeconomic theory that involves the sum of economic activity, handling the issues of growth, inflation, and unemployment. Also, Microeconomic theory handles the effects of state run economic policies such as changing levels of taxation on the above mentioned aspects of the economy. Predominantly, while considering Lucas critique, much of modern Macroeconomic theory has been built upon micro foundations which are based upon basic assumptions about microeconomic level conduct.

Source: Google images

This demand and supply diagram demonstrates how prices differ as an outcome of equilibrium amongst product accessibility at each given price which is known as supply and the requirements of the ones with buying power at each given price is called demand. This graph shows a transfer in demand from point D1 to point D2 together with the resultant growth in cost and number required to attain a new point of market equilibrium position on this curve of supply which is S.