The fewer divisions a corporation has domestically, the less its direct investment imports.
The fewer divisions a corporation has domestically, the less its direct investment imports. Production costs. The lower the cost of production in the host country, the greater its import of direct investment. The higher the cost of production in the host country, the smaller its import of direct investment. Market size. The larger the domestic market, the greater the volume of its imports of direct investment. The smaller the size of the domestic market, the smaller the volume of its imports of direct investment.
State support for direct investment
Given the growing political importance of direct investment, direct investors are receiving increasing attention from governments in both host and host countries.
Providing state guarantees. Guarantees can be provided by both the home country and the host country. Under the laws of many countries, investors wishing to place their capital abroad can obtain guarantees from their own or a foreign state for their investments write a lab report.
Foreign investment insurance. It is a specific form of insurance and can be produced by both shares and government agencies. The content of insurance is the purchase by the direct investor of insurance against the risks specified in the insurance, which costs up to 1% of the investment amount.
Settlement of investment disputes. Theoretically, it is possible to settle investment disputes on the basis of the national legislation of the host country, the national legislation of the country of direct investor or international arbitration.
Exclusion of double taxation. States whose corporations are particularly active in mutual direct investment often sign double taxation agreements relating to the profits of enterprises with foreign investment.
Administrative and diplomatic support. Direct investors are usually under the care of the authorities of the home country: the government negotiates with foreign countries to create the most favorable conditions abroad for national investors.
Portfolio foreign investments, their reasons and types
Portfolio investments – investments in foreign securities that do not give the investor the right of real control over the object of investment. International portfolio investments are classified as they are reflected in the balance of payments. They are divided into investments in:
joint-stock securities – a monetary document circulating on the market, certifying the property right of the owner of the document in relation to the person who issued this document; Debt securities – a monetary document circulating on the market, which certifies the relationship of the loan holder of the document in relation to the person who issued this document.
Debt securities can take the form of:
bonds, promissory notes, promissory notes – monetary instruments that give their owner an unconditional right to a guaranteed fixed income or to a contractual variable income; money market instruments – monetary instruments that give their owner an unconditional right to a guaranteed fixed cash income on a certain date. These instruments are sold on the market at a discount, the amount of which depends on the interest rate and the time remaining to maturity. These include treasury bills, certificates of deposit, bank acceptances, etc .; financial derivatives – which have a market price of derivative monetary instruments that certify the right of the owner to sell or buy primary securities.
For the purposes of accounting for the international movement of portfolio investments in the balance of payments, the following definitions have been adopted:
Note / promissory note is a short-term monetary instrument (3-6 months) issued by the borrower in his name under an agreement with the bank, which guarantees its placement on the market and purchase of unsold notes, loan extension or provision of reserve loans. The most famous notes are Euronotes. An option is a contract (security) that gives the buyer the right to buy or sell a certain security or commodity at a fixed price after a certain time or on a certain date. The buyer of the option pays a premium to its seller instead of his obligation to exercise the above right. A warrant is a type of option that allows its holder to purchase a certain number of shares from the issuer on preferential terms for a certain period. Futures are standard short-term contracts for the purchase or sale of a particular security, currency or commodity at a specified price on a specified date in the future. Forward rate is an agreement on the amount of interest rate that will be paid on a fixed day on a conditional fixed amount of principal and which may be higher or lower than the current market interest rate on the day. Swap – an agreement that provides for the exchange after a certain time and on the basis of agreed rules for payments on the same debt. The interest rate swap involves the exchange of a payment according to one type of interest rate to another (fixed interest rate to floating interest rate). The exchange rate swap involves the exchange of the same amount of money, expressed in two different currencies.
Reasons for foreign portfolio investment
In general, they are close to the reasons for foreign direct investment, with the correction that as a result of portfolio investment, the investor does not acquire the right to control the company in which the capital is invested. However, at the same time, the liquidity of portfolio investments, ie the ability to quickly convert securities into cash, is much higher than that of direct investments.
The main reason for portfolio investment is the desire to place capital in the country and in such securities in which it will bring the maximum return at an acceptable level of risk.
Portfolio investment is seen as a means of protecting money from inflation and speculative income. In this case, neither the industries nor the types of securities in which investments are made are of particular importance if they provide the desired income due to the growth of exchange rate value and dividends paid.
Theories of motion of factors of production. Abstract
The movement of factors of production in terms of the theory of comparative advantage leads to a greater increase in aggregate production in trading countries compared to international trade
Suppose that country I and country II make goods 1 and 2. Obviously, since 1 < 6 і 1 < 2, країна II має абсолютну перевагу у виробництві як товару 1, так і товару 2. Оскільки 1/1 < 6/2, країна II має порівняльну перевагу у виробництві товару 1, що, у свою чергу, означає, що країна I має порівняльну перевагу у виробництві товару 2, оскільки 2/6 < 1/1,. Тому в умовах торгівлі країна I буде експортувати товар 2 у країну ІІ и імпортувати звідти товар 1.
Suppose that country I makes goods 1 per piece less, and country II – one piece more and the countries trade. The refusal of country I to produce one unit of commodity 1 due to its comparative advantage in the production of commodity 2 will lead to an increase in its production to 6/2 = 3 pieces in country I and a reduction in production per piece in country II. As a result, the world as a whole will be made for two pieces of goods 2 more. The increase is based on the use of the situation of comparative advantage of country I in the cost of production of goods 2.
Let us further assume that in country I, instead of moving within the country to the industry that makes commodity 2, in which there is a comparative advantage, workers move abroad, to country II, where in the production of both commodity 1 and commodity 2 their labor can be used more productively.
In this situation, the refusal of country I from the production of one piece of goods 1 will free 6 workers, who, having moved to country P, will make one piece of goods 1, but already (6-1 = 5) pieces of goods 2. The increase is based on P in the productive use of factors of production.
Thus, the movement of factors of production in terms of the theory of comparative advantage leads to a greater increase in aggregate production in trading countries compared to international trade. Aggregate growth based on the use of the situation of absolute advantage in the more efficient use of mobile factors of production exceeds the growth based on the use of the situation of comparative advantage in the cost of production of goods and trade in them.
Mobility of factors in the theory of the ratio of factors of production
Suppose the situation: factors of production (labor and capital) can move freely between countries, and goods 1 and 2 for some reason are non-commercial and can not be exported or imported. As a result of the emergence of a common labor market and capital in the two countries will equalize the price of factors of production. Since no one will work for a lower salary, if you can move freely to another country and receive a higher salary there, there will be an immediate equalization of salaries.
The interest rate is also equalized, because in the absence of restrictions, capital will move slowly from the country where the interest rate is lower, to the country where it is higher. The consequence of the international mobility of factors of production is, as a rule, a greater increase in aggregate production than as a result of trade. The combined limit of TT’s production capacity in countries I and II is known to show a combination of goods 1 and 2 that consumers will have at their disposal if countries specialize in what they are able to do at the lowest cost and trade with each other. …
In this case, the factors of production do not move between countries. On the AB segment, both countries produce both goods, which, according to the Heckscher-Olin-Samuelson theorem, leads to equalization of prices for factors of production in both countries. In the period TA, country I fully specializes in the production of capital-intensive goods 1, and in the period between BT ‘country II fully specializes in the production of labor-intensive goods 2.
The closer the countries I and P in terms of factors of production, the longer the segment AB. In one extreme case, if the amount of capital per worker in country I is exactly the same as the amount of capital per worker in country II, both countries will make both goods:
LEARN SOMETHING NEW
GET INSTANT ACCESS TO 100+ ONLINE COURSES
- Courses provided by New Skills Academy
- Over 200k students already trained
- Study in your own time and from any device
- CPD certified qualifications
- Verifiable certificate upon completion of the course
- Gain 12 months access to over 100 courses for a one-off payment