Deregulation of financial markets (less rules and regulations in currency markets and foreign investment) led to a rapid increase in FDI and portfolio investment. Investment makes economies more integrated as economic changes in one country influence others (CONTAGION e.g. negative effects such as the GFC and the EDC or positive effects such as new technology and booming economies). The main benefits are that it enables countries to finance their domestic economy even if domestic savings are low. The result higher investment = more GDP and higher living standards. Foreign Direct Investment (FDI): is where businesses buy a controlling interest (greater than 10%) in a foreign business. A business may also set up facilities from scratch. It is 140 times greater in 2010 than it was in 1970. Direct investment is normally view as a long term investment which has greater benefits in terms of employment and infrastructure Portfolio Investment: businesses and individuals buy a share of an overseas business (less than 10%) Financial flows have grown rapidly in the globalisation era due to •
Technology – computers and internet allowing money to move instantly •
Increased opportunities for investment from advanced economies •
Increased demand for funds from emerging economies e.g. China, India and Brazil having large opportunities for people to invest in •
Deregulation – governments allowing foreigners to invest in their country
Investment and transnational corporations
Investment here refers to the flow of ideas and technology around the world. International investment has aided this as TNC’s set up operations around the world or buy and modify existing organisations. New business practices and technology are demonstrated and adopted around the global economy. Process is called International Convergence Transnational Corporations – have production facilities in at least TWO countries. They are global companies that dominate product and factor...
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