IR 213 Lecture Notes - Lecture 14: Foreign Direct Investment, Speculation, Portfolio Investment
6 Apr 2016
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Categories of foreign investment: foreign direct investment (fdi): You (partially) control the enterprise you"re investing in. Building factories, buying land, setting up farms, building mines, etc: portfolio investment (no control) Bonds: i. e. loans to firms (sold at auction) Bank loans: sovereign debt (government bonds) Hot capital: hot capital is capital investors can pull out quickly when they get scared. I. e. short-term bonds (both private and government: these investors make money off of: Cold capital: foreign direct investment: actually control the business in question, tends to be a long term investment. Because it"s harder to find buyers for entire companies: this makes firm especially vulnerable to political risk (i. e. war, expropriation) Obsolescing bargain (discuss later: firms invest overseas to: Seek factors of production (land, labor, natural resources) Different steps of the development/production/sales process occur in different locations. Produce the same good/service in several different locations. The obsolescing bargain: year 1: a mining firm signs a contract with a government.
