How do you evaluate the benefits or detriments of foreign investment? How much weight do you give to the concern that FPI can lead to economic upheaval?
Geog 2000–Week 1–Part 3
How do you evaluate the benefits or detriments of foreign investment? How much weight do you give to the concern that FPI can lead to economic upheaval? Do you find the argument that foreign investment amounts to “buying” another country?
By looking at the success of the reasons behind the foreign investment, one is able to evaluate the benefits and detriments of foreign investment. A beneficial foreign investment has the following characteristics; first, it helps investors to find new consumers of their goods and services. This results in higher returns than investments done locally. Second, a beneficial foreign investment helps investors in seeking resources in foreign at a cheaper cost. A beneficial foreign investment helps in seeking strategic assets that are helpful in producing more quality products associated with higher income. Recipient countries evaluate the benefits of the foreign investment by looking at the living standards before and after the investments. FDI is associated with rising living standards for the recipient countries. If foreign investment lowers the value of a local business or lowers the comparative advantage of the recipient country, then it is considered to be more detrimental rather than beneficial.
Foreign portfolio investment (FPI) is a category of investment instruments. It is consists of securities as well as other financial assets which are held by foreign investors passively. This kind of investment does not give an investor with a direct ownership of the assets. The foreign portfolio is relatively liquid depending on the market volatility. When it comes to FPI, investors buy bonds, stocks, among other financial assets in foreign nations. However, the investor does not actively manage the investments meaning that they do not have control over the business. For this reason, the concerns over FPI effects on economic upheaval is less weighty than it would be when it comes to foreign direct investment that controls their investments.
Foreign investments are bringing more income for investors brought about by tapping available foreign markets, producing quality products for local consumers, and selling of goods and services at a cheaper price due to lower production costs. Recipient countries also benefit from foreign investment by getting quality products at an affordable price. Again, foreign investment does not involve buying assets of a recipient country. They instead invest in some assets, beneficial to both the investors and the recipient. For these reasons, I do not support the argument that foreign investment amounts to buying another country. Addressing concerns over foreign investments will help more people to embrace foreign investments.
Controlling foreign investment in prominent sectors of a nation’s economy such as encouraging foreign portfolio investment will help in addressing such concerns. This will help reduce the suspicions of foreign investors wanting to control domestic society. Giving more attention to local production will also help address the concerns over greater reliance over foreign products.
Local investors from wealthier countries are closing their operations in higher cost domestic manufacturing to send them to foreign countries especially the developing countries where they take advantage of lower wages. This means that many domestic jobs are lost. Also, FDI may encourage exploitation of overseas workers. However, the rate of FDI is lower as compared to domestic investment meaning that only limited jobs are lost which does not exceed the income from the investments.
There is a shift of job distribution in the United States over the past decades where people are losing jobs in the manufacturing industry. A majority of people are now seeking jobs in the higher technology sector which seems to have more job opportunities. The manufacturing sector jobs are leaving the United States as companies take their production processes in foreign countries. The jobs are instead taken by people in the recipient countries. The manufacturing jobs are being replaced by jobs in the higher technology sector.
Is it better for your economy to produce goods at home, or is it preferable to move production overseas so that consumers may pay lower prices? What is the effect on developing countries of these shifts in production?
Moving production overseas enables economies to have their consumer purchase products at a lower price than they would if production was done domestically. This is associated with the availability of cheaper resources such as lower wages such as less restrictive environmental regulations. Moving production overseas enables investors to buy elements of a final product overseas in making products, this makes production more efficient reducing production costs which eventually enables consumers to access the products at a lower price. Another advantage of moving production overseas is that it challenges local corporations to be more efficient and competitive. The local competitions also ensure that their prices are affordable for them to attract more consumers. Although movie production overseas is beneficial, it should be controlled. This is to ensure there are employment opportunities for local people. In addition, the domestic production plays a major role in maintaining a local touch that may be overlooked in foreign production. Therefore, economies should seek to make some production overseas which ensures that consumers access the products at a lower price but also invest in a local production that helps in maintaining a stable economy.
Developing countries experience various effects of increased foreign investment. Most developing countries have a high demand for goods and services. They also tend to have labor and natural resources necessary to supply the goods. However, they lack access to capital for producing the goods. Foreign investors help in giving such capitals, enabling these countries to begin the production. This is important considering that banks in developing countries cannot afford to fund such investments. By funding the projects, many jobs are created in developing countries. As a result, there is higher income as well as increased consumer demand which boosts local economic growth. The capital invested in developing countries is of tremendous benefit to the economy of recipient countries, strengthening their currencies, and helps in reducing interest rates by increasing the capital supply of loans.
It is better to create jobs in developing countries because it results in higher income and raised living standards which are associated with improved economic growth. An improved economic growth will not only benefit the developing countries but will also enable foreign investors to make more income. When it comes to labor and environment concerns, standard policies should be put into measures. These policies should address labor wages, job security as well as working conditions. When it comes to the environment, there should be policies that will ensure that preservation of nature and public health is given priority over the cost of globalization.