Lesson Notes Global Banking Lesson 3
Lesson Notes Global Banking Lesson 3
  • Foreign investment is both a cause and effect of financial globalization.
  • Please see the introductory page of globalization101.org document entitled “investment and globalization” for latest figures and trends in foreign investment.
  • Foreign investment falls into four main categories: commercial loans, official loans, FDI, and FPI.
  • FPI is a passive form of investment; FDI is an active form of foreign investment.
  • Companies investment in foreign countries for various reasons: market seeking (new market), resource seeking (oil field), strategic asset seeking (knowledge), efficiency (cheap labor) seeking.
  • Foreign investments mainly originate in developed countries and end up in developed countries. Some developing countries are now emerging as source and destination of foreign investment.
  • The reasons for dramatic rise in foreign investments are: technology, lure of higher profit, the end of the Cold War, financial liberalization.
  • Governments can actively promote inward foreign investment through economic policies such as favorable tax rates. It can restrict foreign investments through policies such as banning foreign investment in strategically important sectors.
  • Positive effects of foreign investment are: capital inflows, employment generations, production advantage (including technology transfer). Concerns about foreign investment are: financial volatility, contagion effect, loss of national sovereignty, job loss due to off-shoring.