PSCI 3328 Lecture Notes - Lecture 19: Foreign Direct Investment, International Monetary Fund, Bretton Woods System
Document Summary
Three types of foreign investments: portfolio investments. Investments in a foreign country via the purchase of stocks (equities), bonds, or other financial instruments. Portfolio investors do not exercise managerial control of the foreign operation: sovereign lending. Loans from private financial institutions in one country to sovereign governments in other countries: foreign direct investment (fdi) Investment in a foreign country via the acquisition of a local facility or the establishment of a new facility. Direct investors maintain managerial control of the foreign operation. Why invest abroad: heckscher-ohlin suggests capital rich would send money to capital poor because in a capital poor, the people are willing to pay more for the money (higher interest rates) So why don"t we all invest our money in capital-poor foreign states: often prefer lower-risk investments in developed states. What does a state do it doesn"t have the money to pay the bills: don"t pay (default, or they raise money through tax, print, borrow.
