Critically discuss how foreign divestment can affect the host country and assess whether foreign divestment is beneficial or harmful to the host country.

| February 8, 2016

Critically discuss how foreign divestment can affect the host country and assess whether foreign divestment is beneficial or harmful to the host country.
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Although FDI is expected to bring in an array of benefits to the host country, whether FDI
benefits a host country is a much debated argument because there are positive effects as
well as negative effects of FDI. Effects of FDI can materialise either as direct effects (own
firm effects) or spillover effects (effects on other firms and on the host country environment).
There is a large literature that examine the effects of incoming FDI on the host economy.
Although FDI represent a long term commitment, MNEs frequently divest their subsidiaries
in foreign locations. Foreign Divestment is the counterpart to Foreign Direct Investment
(FDI) where an MNE divest its stake in a foreign subsidiary. Foreign divestment is
considered as one of the most neglected research areas in international business. But this
fact is changing with the growing attention received by foreign divestment activities (see for
example, UNCTAD (2015)). Increasingly many scholars are interested in studying foreign
divestment, however, studies examining the impact of foreign divestment on the divested
firms or host economies are still very limited.
You first need to read the literature on the impact of FDI in order to understand how FDI can
affect the host country. This will enable you to comprehend the positive and negative
effects of FDI. There is a large literature on this topic, therefore, this task is fairly
straightforward. You also need to read the literature on foreign divestment.
After reading the literature on impact of FDI and foreign divestment, you need to critically
discuss whether foreign divestment is beneficial or harmful to the host country. The impact
of foreign divestment on the host country is largely understudied and there is a very limited
literature on this topic. Therefore, only relying on the literature on foreign divestments may
not be sufficient to develop a coherent thesis. Thus, your task involves (1) relating your
discussion to available literature on foreign divestments and (2) extending arguments from
the literature on the impact of FDI to understand the impact of foreign divestments.
Here are some articles to start off with…
United Nations. 1992. World Investment Report 1992: Transnational Corporations As
Engines of Growth: Transnational Corporations and Management Division, Department of
Economic and Social Development, United Nations, New York.
Lipsey, R. E. 2004. Home- and Host-Country Effects of Foreign Direct Investment: in
Challenges to Globalization: Analyzing the Economics University of Chicago Press.
Also available at:
Moran, T. H. 2005. How Does FDI Affect Host Country Development? Using Industry Case
Studies to Make Reliable Generalizations: Institute for International Economics Center for
Global Development.
Görg, H. & Strobl, E. 2001. Multinational Companies and Productivity Spillovers: A MetaAnalysis.
The Economic Journal, 111(475): F723-F39.
Belderbos, R. & Jianglei, Z. 2006. Foreign Investment, Divestment and Relocation by
Japanese Electronics Firms in East Asia. Asian Economic Journal, 20(1): 1-27.
UNCTAD. 2015. World Investment Report 2015: Reforming International Investment
Governance. New York and Geneva: United Nations Conference on Trade and
Gómez-Plana, Antonio G.; Latorre, María C. (2014): When multinationals leave: A CGE
analysis of the impact of divestments, Economics: The Open-Access, OpenAssessment EJournal,
Vol. 8, Iss. 2014-6, pp. 1-41,
MEYER, K.E. and SINANI, E., 2009. When and where does foreign direct investment
generate positive spillovers? A meta-analysis. Journal of International Business
Studies, 40(7), pp. 1075-1094.
Guidance on tackling your essay
I suggest that you address the question in the following way:
Stage 1 – broad reading
To answer the essay question, you will need to read widely around the topic. You need to
find and read academic articles, mainly academic journal articles, relevant to the essay
question. Few references are given below each essay question but this is not an exhaustive
list, you need to do your own literature review.
Stage 2 – selecting material which is relevant
Having undertaken wide reading, you need to bring your ideas together. Try to make a list
of the theories/concepts/arguments you have identified and ensure that you understand
them (this might mean doing some further work). What issues are interesting here – do all
of the authors agree with one another?
Stage 3 – organising the material you have identified into an argument
This is creative part which demonstrates that you are able to undertake ‘critical’ and
‘evaluative’ work. Your task is to convey that you have understood the available literature,
bring in your own arguments and put them together in a meaningful and original manner
(not copying other people). You need to think about the logical way of grouping different
ideas and how you can best convey that.
Stage 4 – drafting your essay
Essays take a long time to construct and everybody goes about it in a different way. It is
likely that you will have to draft it and edit it a number of times. The first attempt may look
very rough.
Stage 5 – polishing your essay
Edit, edit, edit. Check that your introduction refers to the question. Make sure your
references are presented in the right format. Does your essay have a conclusion? What
makes your work original and interesting?
Excellent use of
academic literature.
Extensive use made of
appropriate journal
articles. The essay
demonstrates a good
familiarity with the
literature and integrates
it well into the
development of the
essay and its
Excellent relevance. All
of the material is directly
and explicitly relevant to
the question.
Excellent argument. The
essay is structured
around an explicit
argument that is clearly
articulated and
demonstrates innovative
insights into the subject
Excellent writing style. A
good use of language
and vocabulary and
sentence construction.
Engaging to read. Ideas
are linked logically and

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