Hi all,
the exam period has started already and I made a summary for the International Economics class which is provided at the ABS/HAN in Arnhem.
Please feel free to make use of the summary to prepare yourself for the test. Don't forget to leave a review behind!
Week 1.
International economics is about international transactions, goods and services, FDI (Foreign Direct
Investment), PI (Portfolio Management) and the currency exchange.
International ownership of assets
Foreign Direct Investment (FDI) – Making a purchase of an asset i.e. a building in a foreign
country while the purchaser is in the home country.
is a category of investment that reflects the objective of establishing a lasting interest by a
resident enterprise in one economy (direct investor) in an enterprise (direct investment
enterprise) that is resident in an economy other than that of the direct investor.
When an investment is greater than 10% it automatically becomes an FDI.
Horizontal FDI - The majority of foreign direct investment occurs between industrial countries. These
flows between industrial countries are called horizontal FDI.
Vertical FDI - The other form of foreign direct investment occurs when a firm from an industrial country
owns a plant in a developing country which is called vertical FDI.
Portfolio Investment (PI) – Trading stocks on the stock exchange.
International investments
FDI PI
Mergers, acquisitions Buy for and or sell to shares, stocks, corporate
bond abroad countries.
Inflow for sellers (Exporter)
Outflow for buyers (Importer)
A government prefers FDI than PI. Foreign Direct Investments are long-term investments while Portfolio
Investments are short-term investments.
, Receivables advantages
FDI PI
Job opportunities Cash “Hot money”. Injections of cash into the
economy
Increase TAX revenue
Network for distribution
Exports network
- New management
New technology
Receivables disadvantages
FDI PI
High prices could lead to an economical inflation. Hot money leaves suddenly (comes and goes).
Aims
PI = financial return
FDI = Control
Globalization refers to the trend towards a more integrated global economic system.
There are two key facets of economic globalization:
The globalization of markets
- Exports/imports goods and services
The globalization of production
- MNEs/FDI, off-shoring & outsourcing regional/global supply chains and intra-firm trade
Off-shoring – moving (a part) of production abroad.
Out-sourcing – sub-contracting production by another company.
Intra industry trade – trading with a product of the same category i.e. tomatoes and cucumbers.
Intern industry trade – trading with a product of different categories.
There are two macro factors underlying the trend towards greater globalization:
1. Technological change
2. Declining trade and investment barriers
1st wave of Globalization 1870-1914
Decreases in tariff barriers & new technologies
Declining transportation costs
- Shift from sail to steamships; Railways.
Mainly driven by European and American businesses
- Became the richest countries in the world
Ended by World War 1 and the Great Depression
- Protectionism
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