Investment?? This is new to me!

All my life, anything to do with the economy had never been a concern to me, as i totally have not got even a single bit of interest on that, I know I should equipt myself with what is going on in the business world as it is the one that keeps the country going. Well, since I've been so ignorant, so I thought of doing some research on what investment is all about, why are there huge investment activities in countries such as China and India? And this is what I manage to compile... I'm impressed too.. =)

Investment as defined economically is the spending of a firm or a country on extra capital goods to increase output and inflow of revenue.

Well, everyone knows that investment is a very important activity in determining the country’s level of prosperity. This is rather true as the number of firms going international nowadays is rapidly growing. This came with motives of maximizing profits. As these foreign direct investments (FDI) grows, it has led to the trend of globalizations where it had been reflected by the U.S where it is one of the most popular destination for investment either abroad or as a host country. The reasons to this are because of the stable economy and the inexpensive dollars used as the international trade currency.

Investments by Multinational Corporation (MNC) in the developing countries started increasing since 1980’s which has helped stabilize and created a more prosperous economy for these countries. The FDI had in a way assisted these countries in facing hardships. The benefits of FDI to the host country are firstly reflected by the allowance of technology transfer where large capital is being introduced, promoting competition within local industries.

Secondly, there is a development of human capital with the retraining schemes provided. This had improved labour skills leading to an increase in salaries which cause a higher spending power and also a higher standard of living among the local citizens. Besides that, productivity level also rises, increasing the country’s export activities. The government had kept interest rates low to further attract FDI into the country. This is because the higher the revenue earned by this MNC’s, the more tax payable to the host country.

The reason behind these MNC investing in a foreign country is to be able to explore new markets, to obtain raw materials and human resources where in their home country there are limited resources to share with their local industries. The benefits of allowing FDI into a country is not solely gained by those MNC’s but it has in a way helped local industries of the host country. The allowance of FDI has assisted the growth of local industry. This is because government had implemented tax breaks to local industries but not to foreigners. Government business or contracts are also given priority to local industries giving them more experience and to be better able to compete with the foreigners. However those foreign companies that entered the country have a tendency to cause a foreign exchange loss. For example countries like China and India where there are large population will attract FDI into their country to produce for their local market and not for exports.

As a conclusion, the level of investment in a country is one of the critical issues that would help determine the status of the economy. However the benefits gained from foreigners investing into our country is that it adds on to the total capital stock and probably stock of technology and management as well. As local governments gain from the tax paid by the MNC’s there will be another round of spending by the government in improving education and health care to further improve the local citizens quality of life. In the pass we can see that most of the investing activities was located in the U.S, Europe, Latin America and etc.

But today we can see more of the East Asian countries actively involved in these investing activities for example Four Tiger of South Korea, Taiwan, Singapore and Hong Kong. Not to forget also that Japan and China today is one of the two strong leading economies that had gained tremendous respect from all leaders around the world.
Now be proud that we are Asians! ;)