Essay Sample for Everyone: Foreign Direct Investment in the UK

Foreign Direct Investment is one of the major tools used in facilitating the economic development in a nation. Majority of the nations have been shown to struggle to attract the foreign investors based on the significant role they play regarding the economic development. One of these nations is the UK. Over a long time, the UK has designed various economic measures to encourage foreign direct investment into the nation. They are discussed as below.

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The FDI flows

Various studies have shown that the FDI flows were tremendously remarkable and constant from 2011 and 2015 with a sharp flow experienced in 2013. The FDI flows constitute the major attraction for the UK foreign investment because of the ability to utilize the government gets from the FDI. In the situation whereby the return is higher than what is obtained in other nations, then the nation will not venture for the investment. Regarding this, the government of UK has demonstrated consistency about the FDI flows as an economic measure to attract the foreign investors (Jones and Wren, 2016). It is important to note that the FDI flows may be able to show the tremendously high level of vitality from one year to another. The global economic fortunes, developments from the specific sector and the individual situation are some of the factors that contribute to the changes associated with these changes.

GDP

The foreign direct investments like in the UK is much encouraged by the GDP of the state. The UK usually depends on the estimated net worth on the general income and the existing microeconomics values. These estimates are used by the UK government to assist bargain for the economic base, on the other hand, the magnitude GDP per household is commonly used as the bargaining power in the foreign investments. The higher GDP in the UK indicates the economy is on the rise and thus calls for huge demand on the foreign investments. Imperatively the foreign direct investments in the UK and other related states reflects the level of production and the international ownership. The investments encompass all sectors and help to determine the foreign investments.

Accessing to Trading blocks

The access to the trading blocks and the economic policies and the agreement which UK is part of constitute to another measure aimed at attracting an FDI in the UK. The government has adopted a uniform tax policy regarding the international norms. These tax policies and those have been those that consist of the moderate policies as an economic measure (Simmons et al. 2016). This measure entails the exploitation of the new markets for expansion both in domestic as well as in foreign markets. The UK, for example, has embraced this strategy as an economic measure that is meant to facilitate a cost reduction regarding the production thus giving a room for diversification. The accessibility to the trading blocs has helped the UK to be able to determine and embrace various forms of agreement that are important not only for the domestic investors but also from the investors from the foreign nations that form part of the pacts or concessions.

The accessibility of the trading blocs has further enabled the United Kingdom to benefit from the economic integration, free transfer of resources, increased trade, as well as the cooperative spirit. These factors play crucial roles in creating a suitable environment through which the foreign investors will desire to inject their resources (Simmons et al. 2016). Major factors for the firms that invest in Europe including the United Kingdom is the accessibility to the European Union single market, as it is a free trade area but also consists of considerably low non-tariff barriers based on the harmonization of the rules, regulations, and the free movement of the people.

Tax incentives

The significance of the tax incentives in enhancing the FDI in the UK cannot be underestimated. The Tax incentives influence the decisions of the investor to invest in a country or not. For a long time, the incentives to attract the FDI in developing nations has faced a weak design, lack of transparency and the cumbersome administration, which substantially reduces the attractiveness of the incentive (Simmons et al. 2016). The government of the UK, however, has been able to use various types of incentives in a more targeted and cost-efficient manner through targeting the incentives at the specific foreign investors whose decision to invest in the United Kingdom will likely to get swayed by a given incentive. Besides, the government has improved the design, transparency, as well as the administration to reduce the costs incurred and reducing the possible effects.

The Fiscal policies

The government of the UK has been able to use the fiscal policies as the instrument through which they can use to attract the foreign investors. In fact, the fiscal policy helps in the distribution of incomes, resource allocation as well as the economic activity. From the general perspective, the changes in the fiscal policies are always reflected in various macroeconomic variables that include the GDP, government debt, budget and the FDI. It is undeniable to mention that the monetary policies can be restrictive especially when relating to the type of business being undertaken in a nation. It may also be loose or neutral. Based on the fact that the UK's economy is growing rapidly and the inflation rising at an alarming rate, the central bank took drastic measures to respond to this case by raising the interests' rates, which ultimately leads to the restrictive nature or the tight monetary policies. In the cases whereby the economy experiences some sluggishness, the central bank will implement the policies that can accommodate the interests of the foreign investors who even wish to invest in a hug and risky businesses within the country. The impact of the fiscal or the monetary policies is therefore either direct or indirect. As such, the money affects the primary asset categories, and this includes the equity bonds, cash, real estate, currencies as well as the commodities.

Conclusion

In conclusion, the FDI plays an essential role in economic development of a nation. Through the use of strategies such as tax incentives, FDI flows, and the accessibility to the trading blocs, the UK has succeeded to attract numerous foreign investors who have facilitated the nation's economic development. The government's move to improve the design, transparency, as well as the implementation of the international trade policies have helped to reduce the possible effects of such interaction.

References

Jones, J. and Wren, C., 2016. Foreign direct investment and the regional economy. Routledge.

Simmons, J.W., Hicken, A., Kollman, K. and Nooruddin, I., 2016. Foreign Direct Investment flows to countries where the most prominent political parties are national, rather than regional. Democratic Audit UK.