Global Capital Investment

Q1) Major multinational organizations such as Acme (some of which are listed below) attempt to track the relative movements and magnitudes of global capital investment. Using these web pages and others you may find, prepare a 5-6 paragraph executive briefing on the question of whether capital generated in the industrialized countries is finding its way to the less-developed and emerging markets.

Q2) Is there some critical distinction between "less developed" and "emerging"? (Please provide a definitive response in 1-2 paragraphs.)

The Old World Bank

OECD

European Bank for Reconstruction

Answer

Foreign Direct Investment (FDI) has considerably increased; multinational companies are the driven force of the rise. They seek to get closer to their customers or to find a cheap workforce. In 1980, direct investment abroad was 40 billion; they are in 2000 a trillion and 1.4 trillion today. In total within twenty years, FDI flows worldwide have been multiplied by more than 20 (Global Investment Trends, 2011). Indirect investment (Purchase of foreign share, which aims to place capital efficiently and not to acquire property) also increased largely due to American and English insurance and pension funds. The FDI and indirect investments abroad originate in developed countries and head to the other rich countries, but also to dynamic developing countries that have cheap labor and abundant raw materials.

According to the basic model that economists have in mind, the capital should move from rich to poor countries to take advantage of higher returns in the latter (an equivalent of the stock market adage "high risk, high return" ). Actually flows are stronger among rich countries than rich and poor countries

On the one hand, over the period 1996-2000, developed countries were the source for 90% of global capital outflows; on the other hand, they received 70% of flows (inward). More specifically, the United States is the first foreign investors with a share in outflows from 17.4% (annual average over the last five years), followed by closely by the UK (16.2%). Countries of the European Union (EU) are accountable for almost 60% of outflows. Moreover, for the same period, the U.S. received a significant portion of the capital flow, accounting for 23.8% in FDI inflows especially, followed again by the United Kingdom (8.3%), the EU countries attracted 37% of flow. Finally, if we compare the temporal evolution of flows between 1980-1995

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