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Econ 242 Italy, the sixth largest industrial economy in the world, only trails France by two spots in the overall world rank yet trails France by drastic propositions when it comes to its foreign investment position. The international economic trends that the two countries exhibit in the past decade are miles apart as are their individual symptoms. Why has France's success in becoming a global economic power surpassed that of Italy? This paper will explore both the inward and outward investment positions of France and Italy and reflect on why the two European nations rank where they do. My initial findings of the two foreign investment positions are presented on Dunning's J-curve: The J-curve shows a net outward investment (NOI) for Italy as $ 59. 3 per capita, a figure significantly lower than France's $ 248 per capita. More specifically, while France's gross outward investment (GOI) is, on average, similar to its level of gross inward investment (GII), Italy displays a different picture.
Instead, domestic investors seem to be lured to the foreign markets while investors outside Italy are not being enticed to invest directly in Italy. While both countries have recognized the importance of integrating their traditional economies into the global economy, achieving internationalization of domestic firms while simultaneously increasing openness in the home market would prove to be a tricky feat. Gross Domestic Product France's real GDP growth enjoyed high rates of growth, particularly in the mid and late 1990 's which was accompanied by an impressive decline in inflation, averaging just under 2 % throughout the 1990 s and fell to. 6 % in 1999. France's exports and imports account for about 50 % of its GDP, making the country's external sector vital to its economic growth. In addition, GDP growth was fueled by increases in household consumption and, more recently, by business fixed investment. After years of weakness in the 1990 s, corporate investment has improved greatly, as firm are trying to increase capacity utilization (shown by appendix 4) and integrate new technologies, creating high net earnings for French companies.
While this improvement in GDP reduces France's government budget deficit and unemployment level, according to Country Watch, wage increases may contribute to maintaining inflation in the one-to-two percent range. Overall, France's growth has created a favorable environment for continuing expansion, both inward and outward, helping to further feed growth and employment in France. On the other hand, the Italian economic growth has been rather tepid, if that. "A chronic underachiever, Italy is burdened with one of Europe's bleakest demographic outlooks", comprised of scandal, pervasive patronage, political instability, a large black-market economy, periodic lira devaluations, and excessive public debt. To make matters worse, the depressed economy of Italy's southern region is one of Europe's poorest. Italy is characterized as industrial in the North and central regions and agrarian in the south, which, according to Country Watch is an oversimplification of the wide socioeconomic disparities that exist among Italy's 20 regions in terms of size, population, unemployment, age distribution, and per capita income.
These are the foundations of Italy's persistent sub-par economic performance. Real GDP growth has continued to waver slightly up and down since 1993, growing by only 1. 4 % in 1999. As maintained by Political Risk Services, 1999 was the 4 th consecutive year that Italy's economy performed worse than the rest of the EU and the weakest sector was exports, due to the Asian and Russian crises. This intensifies the situation given that characteristically Italy's economy is export-intensive. Although employment in general increased in the past decade, further deterioration of the labor force in the south, along with a decline in industrial production, has triggered the deterioration of the country's competitiveness and corroded terms of trade. Dormant domestic demands, due to high inflation, simply worsen the problem.
These severe hindrances to improved economic performance thwart both Italian inward and outward investment abilities. Structural Makeup France offers several structural advantages including high levels of training and education, modern infrastructure, and a central position within the single European market. However, skilled labor seems to produce diminishing marginal gains: as hourly earnings increase throughout the late 1990 s, output per worker begins to decline. Unemployment still remained high even after years of decline. Because of France's lead in technology and defense, a persistent labor shortage will find French companies investing abroad in order to maintain competitiveness. However, the unemployment does ensure lower salaries and availability even for the highly skilled, creating opportunities for inward foreign investment in high-tech sectors.
Dell, Sun Microsystems, and THK have all established subsidiaries in France. Economic expansion has not translated into substantial job creation mostly due to structural rigidities that France has yet to smooth out. Overall, however, sustained high unemployment has been offset by the greater competitiveness of the economy, most notably French technology, defense, and agricultural products. Italy offers a similar labor situation. The labor market is tight, unemployment dipping below 11 % in 1999, while the unemployment in the south continued at more than 20 %. This makes the economy vulnerable to high wage demands, particularly in the North, which could spread to the South, pushing the region into a further depressed state.
Although wage growth has slowed since 1992 in efforts to reduce high inflation, low productivity continues to plagued business operations. There is simply not enough skilled labor in general: "The region, despite its many renowned technical universities in Milan and Turin, is struggling to keep up with demand. " The lack of skilled labor is one reason why outward investment shows a bias towards traditional sectors, especially textiles and clothing, machinery, and furniture, all which require high specialization. Part of the problem is that Italy still has the most rigid labor system in the EU. Union leaders, eager to win compensation for past erosion of real wages, demand wage increases at the slightest improvement in economic growth. Inflexible labor conditions are a huge obstacle to inward investment, yet pose a huge incentive for domestic firms moving abroad to seek better labor cost conditions in labor-intensive sectors. Nonetheless, another difficulty arises because of the regional ized nature of the country: "For a French engineer to go from Paris to Lyon is not a problem.
Because the family is important, Italians do not like to move. " The above, combined with the continuation of Italy's traditional industrial system, comprised mostly of family owned small and medium sized companies, creates severe ob...
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Research essay sample on Foreign Investment France Vs Italy
