Chapter 2.

International Trade and Foreign Direct Investment

WHAT’S IN IT FOR ME?

1. What is international trade theory?

An international trade theory based on my interpretation is an explanation behind the
transaction of trading or exchanging of goods and services that occur between different countries.
Theory, as a matter of fact, consists of ideas, concepts, and principle that serves as great foundation or
basis once a business entity wanted to engage in an international trade. International trade theory
brings forth enough understanding how distribution of products works in the first place and how it
came across nations of the world. It is basically learned that the ancient form of trade started with a
simple barter until it evolves to import-export activities with money involved across different countries.

2. How do political and legal factors impact international trade?

How international trade runs is often affected by political and legal factors. For the political
factors, government involves itself in implementing rules and regulations. There is political system that
operates in democratic way where the market is free from government intervention which favors the
exchange of goods. However, authoritative government strongly impacts the negotiation of businesses
as it limits and controls the way international trading market runs. As for the legal aspects, individual
country policies, terms, tariffs, rules and regulations must be complied for the access of international
trade. Failure to conform with the set standards legally invalidate the penetration of whether imports
or exports across international borders. Before entering into international business, an entity has to
carefully assess all factors with the target destination country disregarding such vital variables may
directly complicate international operations putting the business at stake.

3. What is foreign direct investment?

Foreign direct investment happens when a business is doing an actual investment to another
country. This may include opening factories, plants, and operations, as well as purchasing machineries,
buildings, and equipment as stated by (Chan, 2017). Individuals especially large corporations are
usually seeking for the expansion of their business to the point that they wanted to globalize their
products. Doing direct investment by foreign entity focuses on long term since such investment
involves assets as mentioned above that are expected to be realized more than a year. Our country,
Philippines, is very open to foreign investors because it generates more income in our country which is
essential aid in our economy growth.