Does N.I.E. help a business assess the risks when considering Foreign Assignment

Does N.I.E. help a business assess the risks when considering Foreign Direct Investment - Assignment Example The growing inequality and the gap between rich and poor countries have put questions on the ability of foreign institutions having solution. NIE also suffers from the means of measuring variables discussed in the theory such as transaction cost. 13 Conclusion 13 Introduction In order to fully understand and analyze the role of new institutional economics (NIE) in risk assessment of foreign direct investment (FDI), we first need to develop a sound understanding of the new institutional economy and various aspects of foreign direct investment. In this paper I will discuss what is New Institutional Economics and its background; and how it is dissimilar from traditional economics. Its various impacts and demands will also be discussed. I will also discuss help of NIE in finding solutions which were previously unresolved. What change in system is required for its implementation? NIE is not without its shortcomings it also poses some problems. In this paper we will try to analyze the impa ct of NIE on foreign direct investment. ... believe 1(Barnard Chavance, 2009) that importance of institutions can also be analyzed with the instruments of standard economic theory with some adjustments. He emphasized on the absence of existence of the firms in the conventional economics. He uses the cost of using the price mechanism as his basis. The search of appropriate prices and negotiation of separate contracts can be costly for individuals. Hence an individual volunteers himself under the authority of an organization or entrepreneur to sell his services to the market. Hence market transactions are eliminated and firm replaces the market thus economizing the cost of price determination. He developed the concept of transaction cost. Differing cultural values provide an advantage. The nature of the labour force shows that the cost of overcoming the difference in culture is sometimes worth the cost because of other benefits. This may not be the case always, some countries are obliged to adopt systems that are not in accordan ce to their customs, or companies create their own cultures. Some of the examples from the real world are former COMECON states adopting market based ideas and practices. Candidate states for membership to the E.U. adopting practices to facilitate entry. Western states adopting Japanese production systems, systems developed in a Japanese culture, because of its efficiency. All this implies that national cultural systems must adjust to the demands of modern capitalism. Inability to adjust will restrict or limit the extent the country or region is able to participate in international trade. New Institutional Economics (N.I.E.) helps in studying this problem. Main Characteristics of the New Institutional Economics New institutional economics is different from old institutional economics which