Foreign Investment

Foreign Investment

Foreign Investment, the acquisition by a Government or citizens of a country of assets abroad in the form of bank deposits, foreign Government bills, Government or industrial securities or titles to land, buildings and capital equipment. Private investment abroad will normally be made in the hope of a higher interest or dividend or other income than can be obtained at home, in expectation of alterations in exchange rates, or in fear of political or taxation changes at home. Government investment is undertaken for political, diplomatic, military or other masons that may pay little attention to its yield; examples are British loans to Commonwealth and underdeveloped countries. The problem is to weigh the political and other advantages, which are difficult to judge, against the additional yield the investment would have earned elsewhere.

The benefit to a country as a whole from investment abroad compared with investment at home may differ from the monetary interest or yield received by the investor because it may affect employment, the productivity of labour, the terms of trade and Government revenue. It does not necessarily follow that foreign investment yields a lower 'social' return than investment at home. It may be higher, for example, where it cheapens the price of our imports, as it 'probably did in the nineteenth century. And it does not follow that foreign investment should be performed by government s, which could take the indirect social effects into account, because Government investment tends to become political investment, the errors of individual investment tend to cancel out, and if desirable individual investment can be given general guidance.

Foreign Trade Multiplier, the net effect on a country's national income of an autonomous increase in its spending at home after taking into account (a) the additional spending on consumption caused by the initial increase in spending and income, (b) the additional spending on imports, (c) the effect of (b) on total spending and income in other countries and the further effect which that in turn will have on their demand for the country's exports. The value of the multiplier will depend on the magnitudes of the marginal propensities to consume and to import in the countries concerned.

Forestalling, the medieval practice of buying up supplies before they reached the local market in order to resell at higher prices. These temporary, localized corners were illegal and they became impracticable when improved communications gave access to widespread sources of supply. Also known as 'regrating' or 'engrossing'.

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