TAILIEUCHUNG - International Trade, Foreign Direct Investment, and Security

Conceptually, the equity method treats the investee company as if it were condensed into one balance sheet item and one income statement item and then merged into the investor company at the proportion owned by the investor. The equity method is sometimes called “one-line consolidation” because it results in the same effect on the investor’s earnings and retained earnings as would result from consolidating the financial statements of the investor and investee companies. It does so without combining both companies’ financial statements. ILLUSTRATION In its simplest form, the equity method requires that the investment account represent the investor’s proportionate share of the book value of the investee. | Dixit International Trade FDI and Security International Trade Foreign Direct Investment and Security Avinash Dixit Department of Economics Princeton University Princeton New Jersey 08544 email dixitak@ JEL codes F13 F21 F23 K33 P45 P48 Keywords national security property rights contract enforcement governance institutions Abstract The main focus of this review is on international trade and foreign direct investment when the institutions that provide the security of property rights and enforcement of contracts are imperfect. Some issues of national security related to poor governance of international transactions are also considered. The discussion organizes a selective overview of the literature and offers some suggestions for future research. 1 1. INTRODUCTION Almost all economic activity requires supporting institutions of governance to protect property rights and enforce These institutions whether formal ones provided by the state laws and regulations and courts and agencies that enforce them or informal social ones networks with their norms of behavior and sanctions for violations never function perfectly. Therefore economic activity must be carried out under varying degrees of insecurity. This is true even when the economic activity or transaction is confined to the borders of one country Dixit 2009 . But insecurity is greater and has new dimensions when the activity and transactions cross national borders. The interests of nation-states - geopolitical domestic political and economic - influence their trade and investment policies and outcomes conversely trade and investment opportunities feed back on interests. Governments may violate the rights of foreigners with less fear of political consequences than they would if the victims were their own citizens lobbyists and contributors. Courts may have open or hidden biases favoring their own nationals. Therefore traders and investors have greater concerns about the security of their .

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