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BADM 1004 Week Three and Four Notes

by: Gwendolyn Cochran

BADM 1004 Week Three and Four Notes Badm 1004

Marketplace > George Washington University > Business Administration > Badm 1004 > BADM 1004 Week Three and Four Notes
Gwendolyn Cochran

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Because class was canceled a few times I consolidated all the notes for the lectures that will be on quiz two into one set of notes! These notes cover everything that was lectured about foreign dir...
Age of Globlization
Liesl Riddle
Class Notes
International Business
25 ?




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This 4 page Class Notes was uploaded by Gwendolyn Cochran on Monday February 22, 2016. The Class Notes belongs to Badm 1004 at George Washington University taught by Liesl Riddle in Winter 2016. Since its upload, it has received 95 views. For similar materials see Age of Globlization in Business Administration at George Washington University.

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Date Created: 02/22/16
Week 3­4 Notes Motivations for FDI What explains Foreign Direct Investment decisions?  Push factor o (Sending Country) o Firms have cash or access to credit o Home government promotes investment through treaties  Pull factors o (Receiving Country) o Labor costs o Human capital o Rule of law o Big domestic markets Forms of FDI   Greenfield­ New production facilities  Brownfield­ Mergers and Acquisitions The Costs of Going Abroad Liability of Foreignness Being a foreign firm has a number of disadvantages • Laws • Public opinion • Courts • Consumers Strategies to minimize risk   Investing in Goodwill  Framing the Debate  Finding Political Pressure Points Hedging: Good for currency risk, but not other risks. Legal Contracts: Will the legal contracts be enforced? Insurance: For very limited types of risks 2/22/16 Sources of Inequality Notes In most advanced and industrial economies there is a large concern about  income inequality, with concern rising in developing countries.  Two important questions: 1. How do we measure the distribution of incomes? a. 1% vs. the rest? b. Middle class vs. the poor? c. The rise of power couples  2. Who do we compare? a. Countries? b. Families? c. Individuals? d. Race, gender…  What is inequality?  Income inequality  o Taxes and transfers: government can affect inequality through  taxing and ‘redistribution’ o Pre­tax and pre transfer inequality: due to the marker o Post­tax and post transfer: taxes can reduce (or increase)  inequality   Wealth inequality  Others  o Education  o Life expectancy o Sleep inequality How do we measure inequality? We can measure the distribution of:   Ratio of average paid workers to CEO  “Gini Coefficient” a summary statistic of the overall distribution of  wealth  Globally it is hard to find many examples of inequality decreasing. Just the  growth of inequality varies across countries. A common trend includes the  ‘increasing returns to skills.’ What is driving income inequality?  Two main ‘market’ culprits are: o Technological change  Reducing demand for low skilled labor   Increasing returns to skills  o Globalization  Two main ‘political’ culprits are: o Tax policy   Two general patterns in the developed world  Lowering taxes on capital   Raising other taxes & lowering spending  o Globalization   Returns to labor will decrease in rich countries   Returns to labor will increase in poor countries  Thomas Piketty:   Rise in inequality is structural  Returns to capital are growing faster than economic growth   Returns > Growth  How globalization is political  Government trade, investment and immigration policy made through  the political process  Two observations o Wealth is power. Thus wealthier maybe be able to lock in  policies they like o Mobility is power. Most mobile firms (and workers) can threaten  to leave Solutions to rising inequality 1. Do nothing: depends on your ‘normative’ view of the world 2. Tax policy: engage in ‘redistribution’ from the rich to the poor 3. Markets: try to improve the incomes of the poor by investing in skills  etc.  4. Fairness: correct the mechanisms leading to inequality in the first  place. 


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