Posted: December 28th, 2015

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

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: org/papers/w9293” target=”_blank”>https://www.nber.org/papers/w9293