Main questions of the topic
1. The essence and forms of the international movement of capital.
2. Foreign investments: essence, basic concepts, classification.
3. The main theories of the international movement of capital (neoclassical, neo-Keynesian, etc.).
1. The modern world economy is characterized not only by the transfer from one country to another of the results of the production of goods and services, but also by the factors of production - capital, labor, scientific and technological achievements.
Both companies and countries exporting it, as well as companies and countries-recipients are interested in the international overflow of capital. The first in this way master new markets, increase their profits and, accordingly, the revenues of state budgets. The latter receive additional investments, higher technologies, qualified management and marketing, and hence the acceleration of the pace of technical and economic development.
A characteristic feature of the development of the modern world economy is the growing scale of trade in factors of production, in particular capital. There is also a clear trend towards a decrease in the share of capital transactions on a national scale in favor of international and intra-regional transactions. Companies wishing to successfully operate in a particular market abroad often do not focus on exporting the relevant goods, but seek to organize their own production abroad or purchase a controlling stake in a local enterprise.
Although the movement of capital from one country to another is based on the same laws as the import and export of goods, nevertheless, there are certain features.
The internationalization of economic life enhances the movement between countries not only of goods and labor, but also of capital. Over the past 20 years, in fact, a new world credit and financial system has emerged with its centers of international capital, with a new settlement system, when international transactions for gigantic sums of money are carried out daily through electronic systems.
Russia is interested in restoring and updating its production potential, saturating the consumer market with high-quality and inexpensive goods, developing and restructuring its export potential, pursuing an anti-import policy, and introducing a Western managerial culture into our society. Foreign investors are expanding their foothold for profits from Russia's vast domestic market, its natural resources, skilled and cheap labor, the achievements of domestic science and technology, and ... even its environmental carelessness.
Therefore, our state faces a difficult and rather delicate task: to attract foreign capital to the country and, without depriving it of its own incentives, direct it to achieve social goals through economic regulation measures.
Unlike foreign trade, the export of capital became an important form of foreign economic relations only at the highest stage of development of capitalism. It currently has the following features:
Increasing the role of the state in the export of capital;
Strengthening competition in the global capital market;
Increasing the share of foreign direct investment.
International migration of capital is a counter movement of capital between countries, bringing income to their owners.
The main reasons for capital migration are:
The relative excess of capital in a given country;
Different marginal productivity of capital, determined by the interest rate: capital moves from where its productivity is lower to where it is higher;
The presence of customs barriers that prevent the import of goods and thereby encourage foreign suppliers to import capital to penetrate the market;
The desire of firms for the geographical diversification of production;
Growing export of goods causing demand for capital;
Discrepancy between the demand for national capital and its supply in various spheres and branches of the national economy;
Possibility of monopolization of the local market;
Availability in countries where capital is exported, cheaper raw materials or labor;
Stable political environment and a generally favorable investment climate.
At present, the international market for loan capital is divided into the money market and the equity capital market.
Money market - the market for short-term loans (up to one year). With their help, corporations and banks replenish the temporary shortage of working capital.
The capital market is a market for medium-term (from two to five years) bank loans and long-term (over ten years) loans, which are provided mainly when issuing and acquiring securities.
In recent years, non-traditional forms of long-term financing have been used on the international market, for example, project financing, which consists in providing large loans for specific industrial projects of enterprises. Thus, this form of long-term lending approaches direct investment.
2. The movement of capital can be classified according to different criteria:
According to the sources of origin, the moving capital is divided into official and private.
Official capital is state capital (loans, loans, guarantors, assistance) that is provided by one country to another on the basis of intergovernmental agreements. The source of such capital is the state budget. The capital of international economic organizations (IMF, IBRD, etc.) is also considered official.
Private capital is the funds of non-state firms, banks, etc. The source of such capital is the own or borrowed funds of the respective private enterprises;
By the nature of the use of capital is divided into entrepreneurial and loan.
Entrepreneurial capital is funds directly or indirectly invested in any foreign production in order to make a profit. In turn, entrepreneurial capital is divided into direct and portfolio investments.
Loan capital. The export of capital in a loan form involves the provision of funds for a certain period of time in order to obtain interest for their use, loan capital exported abroad can act as short-, medium- and long-term loans and credits or bank deposits and funds in the accounts of other financial institutions. institutions (see Fig. 1).
Rice. 1. Classification of forms of import and export of capital
Foreign direct investment (FDI) is capital investment for the purpose of acquiring a long-term economic interest. According to the definition of the International Monetary Fund, foreign direct investment is a form of investment when the investor has managerial control over the object in which the capital is invested. Direct investments are considered to be those that cover more than 10% of the share capital and give the right to control over enterprises.
Portfolio foreign investments (FDI) are capital investments in foreign securities that do not give the investor the right to real control over the investment objects. The purpose of portfolio investment is to earn income by increasing the market value and paying dividends. The movement of portfolio investment is significantly affected by the difference in interest paid on securities in different countries; the degree of risk associated with these investments; the desire to diversify (diversify) your portfolio of securities at the expense of securities of foreign origin.
The advantage of portfolio investment over direct investment is that it has higher liquidity, i.e. the possibility of their rapid conversion into currency.
International portfolio investment is classified as it appears in the balance of payments. They are divided into investments:
In equity securities - a monetary document circulating on the market, certifying the property right of the owner of the document in relation to the person who issued this document (shares, stock, participation);
Debt securities - a money document circulating on the market, certifying the loan relationship of the owner of the document in relation to the person who issued this document.
Debt securities may take the form of:
Bonds (bond), promissory note (debenture), promissory note (note) - monetary instruments that give their holder an unconditional right to a guaranteed fixed cash income or to a variable cash income determined by agreement;
Money market instrument - monetary instruments that give their holder the unconditional right to a guaranteed fixed cash income on a certain date. These instruments are sold on the market at a discount, the amount of which depends on the interest rate and the time remaining to maturity. These include Treasury bills, certificates of deposit, bankers' acceptances, etc.;
Financial derivatives (financial derivatives) - having a market price of derivative monetary instruments, certifying the owner's right to sell or buy primary securities. Among them - options, futures, warrants, swaps.
For the purposes of accounting for the international movement of portfolio investments in the balance of payments, the following definitions are adopted:
Note/promissory note (note) - a short-term monetary instrument (3-6 months) issued by the borrower in his own name under an agreement with a bank that guarantees its placement on the market and the purchase of unsold notes, prolongation of a loan or provision of reserve loans. The most famous notes are euronotes;
Option (option) - an agreement (security) that gives the buyer the right to buy or sell a particular security or commodity at a fixed price after a certain time or on a certain date. The buyer of an option pays a premium to its seller in return for his obligation to exercise the above right;
Warrant (warrant) - a kind of option that enables its owner to purchase from the issuer on preferential terms a certain number of shares within a certain period;
Futures (futures) - binding standard short-term contracts for the purchase or sale of a certain security, currency or commodity at a certain price on a certain date in the future;
Forward rate (forward rate) - an agreement on the amount of interest that will be paid on a specified date on a notional fixed amount of the principal debt and which may be higher or lower than the current market interest rate for that day;
Swap (swap) - an agreement providing for the exchange of payments on the same debt after a certain time and on the basis of agreed rules. An interest rate swap provides for the exchange of a payment in accordance with one type of interest rate for another (fixed interest for floating interest). An exchange rate swap involves the exchange of the same amount of money denominated in two different currencies.
Portfolio investments in each of the listed types of foreign securities are broken down into investments made by the monetary authorities (central or state bank), central government (usually the ministry of finance), commercial banks, etc.
3. The theory of the international movement of capital in Western economic literature has received quite a lot of attention. Since the 60s. there were works on the economy of countries receiving capital. During this period, a large number of independent developing states arose on the political map as a result of a stormy national liberation movement. As a result of this process, in the international flows of capital movement, there has been a tendency for its movement from developed countries to developing ones.
Prominent Western economists S. Kuznets, G. Haberner, G. Mayer and others prove in their works that planning for economic growth in developing countries is unthinkable in modern conditions without the possibility of admitting foreign capital into the country's economy. These authors develop the idea that the beneficial influence of foreign capital on a developing economy will affect in all cases, regardless of the form in which it invades the national economy: in the form of private direct investment and loans, in the form of public investment and loans, or in what form. -or other.
In each case, there are arguments justifying and recommending foreign capital as the most effective means of achieving national prosperity. Indeed, on the one hand, capital attracted to the national economy and used effectively has a positive impact on economic growth, helps to overcome backwardness and integrate into the world economy. On the other hand, the attraction of foreign capital imposes certain obligations, creates various forms of dependence of the borrowing country on the creditor, and causes a sharp increase in external debt. Thus, for the national economy, foreign capital can have ambiguous consequences.
At the present stage, the theoretical understanding by Russian scientists of the issues of accepting foreign capital in various forms, its effective use is relevant and important.
There are several different models for such an analysis.
Differential model of cross-country redistribution of capital (model of V. Leontiev)
One of the first attempts to assess the impact of FDI on the long-term economic development of national economies was the model of V. Leontiev. This model reproduces the functioning of two groups of countries - developed and developing. The connection between them is provided by the flow of productive investments, exported from developed countries to developing ones.
Economic growth model based on production functions (Welfens-Jesinski model and its modifications)
- Functional purpose: loan capital, entrepreneurial capital.
- Purpose: direct investments, portfolio investments.
- Affiliation: private capital, state capital, capital of international organizations.
- Terms: short-term capital, medium-term capital, long-term capital.
Capital carries out its movement in two main forms: entrepreneurial and loan.
The movement of loan capital is carried out in the form of an international loan, and entrepreneurial capital - through the implementation of foreign investments.
Loan capital brings income to its owner in the form of interest on deposits, loans and credits. Entrepreneurial capital generates income mainly in the form of profit.
Entrepreneurial capital is divided into direct and portfolio investments. A characteristic feature of direct investment is that the investor owns managerial control over the object in which his capital is invested. Portfolio investments do not provide such control. They are usually represented by blocks of shares, which account for less than 10-25% of the firm's equity.
There are two ways to regulate foreign investment: national legal and international legal. National legal regulation is based on the use of norms and institutions of traditional branches of the national system of law (administrative, civil, etc.). Most countries have developed a set of laws on foreign investment - investment laws.
Basic provisions:
1) Conditions, as well as legal guarantees for foreign investment in the host country. The purpose of these guarantees is to ensure the mutual interests of the host country and foreign investors. In essence, we are talking about the absence of discrimination against foreign investors compared to local ones.
2) Providing foreign investors with benefits and privileges, since foreign investments are associated with increased political and commercial risks, additional costs for transport, communications, and much more.
International legal regulation of foreign investment consists of special interstate agreements, the subject of regulation of which are relations related to the movement of foreign investment of private capital. There are bilateral and multilateral international agreements.
The following interstate agreements have been adopted and are in force:
1. Washington Convention 1965 “On the Settlement of Investment Disputes between Host States and Foreign Private Investors at the International Center for the Settlement of Investment Disputes (ICSID) at the IBRD”. The rules in this Convention for regulating the procedure for settling disputes can be divided into two groups: concerning the conciliation procedure; regulating the procedure for arbitration proceedings.
At the same time, in the event of a conciliation procedure, the parties retain the right to resort to the arbitration procedure for settling the dispute at any time. Unlike the decision of the conciliation commission, the decisions of the arbitration are binding on both parties.
2. Seoul Convention of 1985 on the establishment of the International Agency for Insurance of Foreign Private Investments (MASICHI) under the IBRD.
international capital migration can be defined as the movement of value in monetary and (or) commodity form from one country in order to obtain a higher profit in the capital-importing country.
Otherwise, it can be expressed as a counter movement of capital between countries, bringing their owners the corresponding income.
The movement of capital differs significantly from the movement of goods. Foreign trade is reduced to the exchange of goods as use values. The export of capital is the process of withdrawing part of the capital from the national circulation in a given country and moving it in commodity or monetary form into the production process and circulation of another country.
At first, the export of capital was peculiar to a small number of industrialized countries. Now the process of export of capital is becoming a function of any successfully developing country. Capital is exported by the leading countries, and the middle-developed countries, and developing ones. Especially NIS.
The reason for the export of capital is the relative excess of capital in a given country, its overaccumulation. The most important of them are:
1) the discrepancy between the demand for capital and its supply in various parts of the world economy;
2) the possibility of developing local commodity markets;
3) availability in countries where capital is exported, cheaper raw materials and labor;
4) stable political environment and generally favorable investment climate in the host country, preferential investment regime in special economic zones;
5) lower environmental standards in the host country than in the capital donor country;
6) the desire to penetrate in a roundabout way into the markets of third countries that have established high tariff or non-tariff restrictions on the products of one or another international corporation.
Factors contributing to the export of capital and stimulating it:
1) the growing interconnection and interconnection of national economies;
2) international industrial cooperation;
3) the economic policy of industrialized countries, which seek to give a significant impetus to their economic development by attracting foreign capital;
4) important stimulators are international financial organizations that direct and regulate the flow of capital;
5) an international agreement on the avoidance of double taxation of income and capital between countries promotes the development of trade, scientific and technical cooperation.
The subjects of the movement of capital in the world economy and the sources of its origin are:
1) private commercial structures;
2) state, international economic and financial organizations.
The movement of capital, its use is carried out in the following forms:
1) direct investments in industrial, trade and other enterprises;
2) portfolio investments;
3) medium-term and long-term international loans of loan capital to industrial and commercial corporations, banks and other financial institutions;
4) economic assistance;
5) free (soft) loans.
In world practice, the movement of capital differs significantly from foreign investment.
Movement of capital contains: payment receipts for transactions with foreign partners, provision of loans, etc.
Under foreign investment is understood as the movement of capital, pursuing the goal of establishing control and participation in the management of a company in the country receiving the capital.
The main forms of direct investment are:
1) opening enterprises abroad, including the creation of subsidiaries or the opening of branches;
2) creation of joint ventures on a contract basis;
3) creation of joint developments of natural resources;
4) purchase or annexation (privatization) of enterprises of the country receiving foreign capital.
The international movement of capital occupies a leading place in the International Economic Relations, has a huge impact on the world economy:
1) contributes to the growth of the world economy;
2) deepens the international division of labor and international cooperation;
3) increases the volume of mutual trade between countries, including intermediate products, between branches of international corporations, stimulating the development of world trade.
The consequence for countries exporting capital is the export of capital abroad without adequate attraction of foreign investment, which leads to a slowdown in the economic development of the exporting countries.
The export of capital adversely affects the level of employment in the exporting country, and the movement of capital abroad adversely affects the country's balance of payments.
For countries that import capital, the positive consequences can be the following:
1) regulated import of capital (contributes to the economic growth of the recipient country of capital);
2) attracted capital (creates new jobs);
3) foreign capital (brings new technologies);
4) effective management (contributes to the acceleration of scientific and technological progress in the country);
5) capital inflow (helps to improve the balance of payments of the recipient country).
There are also negative consequences of attracting foreign capital:
1) the influx of foreign capital displaces local capital or takes advantage of its inactivity and forces it out of profitable industries;
2) uncontrolled import of capital may be accompanied by environmental pollution;
3) the import of capital is often associated with the pushing into the market of the recipient country of goods that have already passed their life cycle, as well as discontinued due to identified poor quality properties;
4) the import of loan capital leads to an increase in the country's external debt;
5) the use of transfer prices by international corporations leads to losses of the recipient country in tax revenues and customs fees.
Macro level of capital flow- interstate transfer of capital. Statistically, it is reflected in the balance of payments of countries.
Micro level of capital movement- the movement of capital within international companies through intra-corporate channels.
2. World capital market. Concept. Essence
Financial resources of the world is a set of financial resources of all countries, international organizations and international financial centers of the world.
Financial resources are only those that are used in international economic relations, i.e. relations between residents and non-residents.
The global financial market is a set of financial and credit organizations that, as intermediaries, redistribute financial assets between creditors and borrowers, sellers and buyers of financial resources.
If the global financial market is considered from a functional point of view, then it can be divided into such markets as foreign exchange, derivatives, insurance services, shares, credit, and these markets, in turn, are divided into even narrower ones, such as the credit market – to the market of long-term securities and the market of bank loans.
Often all operations with financial assets in the form of securities are combined into the stock market as a market for all securities, but more often it means only the stock market.
According to the terms of circulation of financial assets, the global financial market can be divided into two parts: the money market (short-term) and the capital market (long-term). The short-term nature of a significant part of the global financial market makes it subject to the inflow and outflow of funds.
Moreover, there are financial assets that are aimed at staying in the money market with only one goal - to maximize profits, including through targeted speculative operations in the money market.
Such funds are often referred to as "hot money". During a financial boom, they are especially actively flowing between financial centers, as well as between these centers and the periphery, and during periods of financial crises and on the eve of them, they quickly return back.
The boundaries between different segments of the global financial market are not clear, and it is possible to reorient an impressive part of the world's financial resources from one part of it to another without much difficulty.
As a result, for example, the relationship between exchange rates (determined primarily by the situation in the foreign exchange market), bank interest (determined by the situation in the debt securities market) and stock prices in different countries of the world increases.
All this leads to the fact that the financial market of the world is unstable. Many economists believe that this instability is increasing.
The globalization of financial resources is growing, and shocks in some financial markets are increasingly affecting the financial markets of other countries.
3. Euros and dollars (Eurodollars)
The world market for bank loans in most cases is based on financial resources that came from one country to the banks of other countries.
International economic relations serve exclusively the market and therefore have lost their national identity.
These are mainly funds in dollars and European currency, which are on deposits, mainly in Europe.
For this reason, they are also called Eurocurrency or after the name of the main currency of such financial assets - Eurodollars.
However, a significant amount of these foreign exchange resources that have lost their nationality circulates in financial centers not only in Europe, but also in other regions of the world.
Eurodollars also include those 40-60 billion dollars circulating in Russia (and banks or in the hands of the population and entrepreneurs).
In other words, Eurodollars are deposits in one currency or another located outside their countries of origin. The scale of the Eurodollar market is close to 10 trillion, it turns out that US dollars make up about 2/3 of this value.
The segment of the bank loan market in which eurodollars are operated is called the euromarket (eurodollar market), and active creditors in this market are called eurobanks, loans taken on it are called euroloans, securities issued on this market are called eurobonds (eurobonds, euronotes), etc. d.
The main reasons for the emergence and rapid growth of the Eurodollar market are as follows:
1) some owners of funds prefer to keep them abroad and in the most reliable currencies of the world, mainly because of the political, social and economic instability of their countries, the illegality of the origin of their funds, and also the intention to avoid high national taxes;
2) the concentration of large financial resources in key currencies makes it possible to quickly and without fear transfer huge funds to various parts of the world.
Eurocurrency- This is a currency that is placed in one of the European countries, but at the same time is not the national currency of this country.
For example, dollars deposited in a Swiss bank are called Eurodollars; yen deposited in Germany are called euro yen, and so on.
Eurocurrencies are used to secure loans and borrowings, and the Eurocurrency market often provides an opportunity to acquire a cheap and convenient form of liquidity to finance international trade and foreign investment.
Commercial banks, large companies and central banks are the main borrowers and lenders. By attracting funds in Eurocurrency, it is possible to achieve more favorable conditions and interest rates, and sometimes avoid national regulation and taxation.
Most of the deposits and loans are short-term, however, the growth of the Eurocurrency has resulted in medium-term loans, especially in the form of Eurobonds.
To a certain extent, the eurocurrency market has replaced the syndicated loan capital market, where banks, seeking to share the risk, united in groups to carry out credit operations. 1950 - the period of the emergence of the European market.
4. Main participants of the global financial market
The main participants in the global financial market are transnational banks, transnational companies and the so-called institutional investors. But a significant role is played by government agencies and international organizations that place or provide their loans abroad.
Individuals also operate on world capital markets, but mostly indirectly, mainly through institutional investors.
Institutional investors include such financial institutions as pension funds and insurance companies (due to the significant amount of temporarily free funds, they are very active in buying securities), as well as investment funds, especially mutual funds.
The value of the assets of institutional investors is evidenced by the fact that in the United States it significantly exceeds the value of the entire GDP (approaching the value of the total GDP). The vast majority of these assets are invested in various securities, including those of foreign origin.
One of the main institutional investors in the world are joint (mutual) funds, especially American ones.
By accumulating contributions from their shareholders, mostly middle-class individuals, such funds in the United States have reached colossal proportions. By the beginning of 1998, the estimated value of the assets was close to $4 trillion, and about half of this amount was placed in shares, including foreign companies.
The rapid growth of mutual funds is due to the transition of small depositors from keeping their savings mainly in a bank to placing them in a more profitable financial institution - a joint fund.
The latter also combines the advantages of a savings bank and investment banks (investment companies), which invest their clients' funds in a wide variety of securities. Some investment funds have been created to work with foreign securities in general or with securities of certain countries and regions of the world.
5. World financial centers
The most active flow of financial resources is carried out in world financial centers. These include those places in the world where trading in financial assets between residents of different countries is especially large.
This is in America - New York and Chicago; in Europe - London, Frankfurt, Paris, Zurich, Geneva, Luxembourg; in Asia - Tokyo, Singapore, Hong Kong, Bahrain. In the future, the current regional centers - Cape Town, Sao Paulo, Shanghai, etc. - may become global financial centers.
Some offshore centers have already turned into world financial centers, primarily in the Caribbean - Panama, Bermuda, Bahamas, Cayman, Antilles, etc.).
The bulk of the assets of the world financial market is concentrated in the world financial centers. This is not only the capital of the country where the financial center is based, but also the capital attracted here from other regions of the world. This is especially true for those financial centers located in small countries.
Having often lost its national coloring, this cosmopolitan capital considers international financial centers to be its “home”.
From here, in the years of a favorable world economic situation, it rushes not only to the countries where such centers are based, but also to the periphery of the world financial market.
6. International credit. Essence, main functions and forms of international credit
International credit- the movement of loan capital in the field of international economic relations, associated with the provision of foreign exchange and commodity resources on the terms of repayment, urgency and payment of interest.
Principles of international credit:
1) return;
2) urgency;
3) payment;
4) material security;
5) target character.
The principles of international credit express its connection with the economic laws of the market and are used to achieve the current and strategic objectives of market entities and the state.
The functions of international credit recreate the features of the movement of loan capital in the field of world economic relations.
Firstly, this is the redistribution of loan capital between countries to meet the needs of expanded reproduction. Thus, credit helps to equalize the national profit in the average profit and increase its mass.
Secondly, it is the saving of circulation costs in the field of international settlements by replacing real money with credit, as well as by developing and accelerating non-cash payments, replacing cash foreign exchange turnover with international credit operations.
Thirdly, it is forcing the concentration and centralization of capital.
The role of the functions of international credit is heterogeneous and changes with the development of the national and world economy.
In modern conditions, international credit performs the function of regulating the economy and is itself an object of regulation.
International credit contributes to the acceleration of the reproduction process in the following areas:
1) the loan stimulates the foreign economic activity of the country. International credit serves as a means of increasing the competitiveness of firms in the creditor country;
2) international credit creates favorable conditions for foreign private investment, since. usually associated with the requirement to provide incentives to investors of the creditor country;
3) the loan ensures the continuity of international settlement and currency transactions serving the country's foreign economic relations;
4) credit increases the economic efficiency of foreign trade and other types of foreign economic activity of the country.
International credit activates the overproduction of goods, redistributing loan capital between countries and contributing to the spasmodic expansion of production during periods of growth, increases the disproportions in social reproduction, facilitating the formation of the most profitable industries and delaying the development of industries in which foreign capital is attracted.
The credit policy of the countries is intended as a means of strengthening the position of the creditor country in the world market.
Export of capital(foreign investment) is the process of withdrawing part of the capital from the national circulation in a given country and moving it in commodity or monetary form into the production process and circulation of another country.
Exporting countries (where capital leaves) are called home countries. Importing countries are called receiving countries.
The most important reasons for the export of capital are:
1. The discrepancy between the demand for capital and its supply in various parts of the world economy.
2. The emergence of the possibility of developing local commodity markets. Capital is exported in order to pave the way for the export of goods, to stimulate demand for their own products.
3. Availability in countries where capital is exported, cheaper raw materials and labor.
4. Stable political environment and generally favorable climate in the host country, preferential investment regime in special economic zones.
5. Lower environmental standards in the host country than in the capital donor country.
6. The desire to penetrate in a roundabout way into the markets of third countries that have established high tariff and non-tariff restrictions.
Depending on the owner, the export of capital is divided into 3 types:
1) private export of capital (large companies and banks);
2) state export of capital;
3) export of capital by international financial companies.
Depending on the period, export is divided into short-term (up to a year) and long-term (more than a year).
The export of capital can occur in commodity (equipment, patents) and monetary form.
The movement of capital is carried out in 2 forms:
1. Export (import) of loan capital or movement of capital (loans, credits, bank deposits and funds in accounts with financial institutions, payments on transactions with foreign partners);
2. Export (import) of entrepreneurial capital or foreign investment:
2.1. foreign direct investment;
2.2. portfolio investments.
Direct foreign investment(FDI) are entrepreneurial capital flows in a form that combines managerial expertise with lending. This is a form of investment when the investor owns managerial control over the object in which the capital is invested.
The main forms of direct investment are: the opening of enterprises abroad, the creation of joint ventures, the joint development of natural resources, the purchase or annexation (privatization) of the PP of the host country.
The income received by direct investors consists of dividends, interest, royalties and management fees.
Portfolio investments are investments in securities of foreign investors (stocks, bonds). They do not allow direct control over the activities of a foreign enterprise.
The movement of capital on the scale of the world economy is primarily in the form of international credit. To show the welfare impact of international borrowing and lending, consider the hypothetical example of capital flows between two countries, the United States and Mexico (Figure 7.1).
Fig.7.1. Movement of capital between countries
The reasons for the flow of capital from country to country can be varied (including political ones, especially when it comes to government loans), but we will proceed from the fact that the only reason that encourages capital to move from country to country is the difference in income levels. for capital.
On the chart, the horizontal axis shows the amount of capital invested in the two countries, and the vertical axes show the level of return on invested capital (interest rate r). The total capital in the two countries is OO. The curves MPK us and MPK Mex show the dynamics of the marginal productivity of capital, which determines the magnitude of the demand for capital: as the stock of capital increases, the marginal product decreases and, consequently, the level of return on invested capital decreases. Accordingly, the area under the curves of the marginal productivity of capital shows the volume of output with different amounts of invested capital.
Let's assume that the US has a significant capital stock (segment OA), but the opportunities for profitable investment are limited. Therefore, if all capital is invested in the national economy (international financial transactions are prohibited), then with a given stock of capital, competition between investors forces them to accept a relatively low level of income - 4% per annum (point D on the MPK US curve. In this case, the volume of production, produced in the USA corresponds to the area (a + b + c + d + e + f).
In Mexico, the capital stock is much smaller (segment O "A), but there are opportunities for profitable investments, since the marginal productivity of capital is high. With a small amount of investment, competition between borrowers pushes the rate of return on capital up to 10% per annum (point F on the IRC curve Mex) The production volume in Mexico will be the area (i + j + k).
Suppose now that all restrictions on the international movement of capital are lifted. If the degree of risk in lending operations in both countries is the same, then it will be beneficial for owners of capital in the United States to provide loans to Mexico, where a higher rate of return on capital has developed in the financial market. In turn, Mexican borrowers will prefer to take out loans in the US, since the interest rate is lower in the US market. Capital will begin to flow from the USA to Mexico, which will lead to a decrease in the interest rate in the Mexican market and to its increase in the US market. If there are no restrictions on the movement of capital, then its flow from country to country should lead to an equalization of marginal productivity and levels of return on capital in the US and Mexico (point E). Assume that the new equilibrium rate of return on capital is 7% per annum. The amount of capital invested in the US will be reduced to OB, and the amount of US capital lent to Mexico will be VA. The combined output of the two countries increased by (g + h). This gain is explained by the fact that part of the American capital has found a more profitable application in Mexico. How is this gain distributed among countries?
In the US, output from domestic investment is now area (a + b + c + d). In addition, the United States receives a return on capital invested in the Mexican economy at 7% per annum, corresponding to the area (e + f + g). Thus, with the free migration of capital, the United States receives a net gain in the amount of area g.
In Mexico, as before, the output from domestic equity investment is the area (k + i + j). However, now the country receives additional income from the use of US capital (area g + h). Mexico pays part of this income to US creditors as interest (area g), but the other part is Mexico's net gain (area h).
Thus, we see that international lending brings additional benefits to both the creditor country and the borrower country, i.e. is mutually beneficial, which is similar to the conclusion obtained in the analysis of international trade. However, just as in the case of international commodity flows, international capital flows divide society into winners and losers. In the creditor country, capital owners benefit by being able to lend at a higher interest rate, but borrowers lose because they are forced to pay more for the loan taken. The opposite picture is observed in the country to which foreign capital flows: there borrowers win, but lenders suffer losses as a result of tougher competition in the financial market.
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Forms of international capital movement
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In modern economic theory, the movement of capital, as well as the migration of labor, is seen as a substitute for international trade. When trade between countries is caused by differences in the provision of countries with factors of production, the international movement of factors of production, primarily capital, replaces foreign trade. International capital flows rush to where the implementation of investment projects provides a greater economic return. This creates an important source of gains from the international movement of capital.
In the literature, the following forms of international capital movement are usually distinguished:
1. According to the sources of origin, public and private capital are distinguished.
Official (state) capital is funds from the state budget that are transferred abroad by decision of governments, as well as by decision of intergovernmental organizations. It moves in the form of loans, loans and foreign aid.
Private (non-state) capital is the funds of private companies, banks and other non-governmental organizations that are moved abroad by decision of their governing bodies and their associations. The source of this capital is the funds of private firms not related to the state budget. These may be investments in the creation of foreign production, interbank export credits. Despite the autonomy of companies in making decisions about the international movement of their capital, the government reserves the right to control and regulate it.
2. By terms of placement, short-, medium- and long-term capital investments are distinguished. Long-term investments usually include investments for a period of more than 15 years. All investments of entrepreneurial capital in the form of direct and portfolio investments are usually long-term. Medium-term capital - capital investment for a period of 1 to 5 years. Short-term capital - capital investment for up to 1 year.
3. According to the purposes of lending, direct, portfolio and loan investments are distinguished.
Foreign direct investment is an investment of capital with the aim of acquiring a long-term economic interest in the country of application (recipient country) of capital, which ensures the control of the investor over the object of capital allocation. They take place in the case of the creation of a branch of a national company abroad or the acquisition of a controlling stake in a foreign company. FDI is almost entirely associated with the export of private entrepreneurial capital. They are real investments made in enterprises, land, and other capital goods.
Portfolio foreign investment - capital investment in foreign securities (a purely financial transaction) that do not give the investor the right to control the investment object. Portfolio investments lead to the diversification of the portfolio of an economic agent, reduce the risk of investment.
They are predominantly based on private entrepreneurial capital, although the state also issues its own and acquires foreign securities. Portfolio investments are purely financial assets denominated in local currency.
Direct investment is associated with ownership and the right to control an enterprise. Portfolio give only a long-term right to income associated mainly with the growth of the stock price. Direct and portfolio investments are classified as entrepreneurial capital.
As a rule, they favorably influence the state of the country's balance of payments. Loan investments are associated with foreign loans and credits in various forms that require payment, urgency and repayment. The advantage of loan capital is the relative freedom of their use.
4. There are also such forms of capital as illegal capital and intracompany capital. Illegal capital is the migration of capital that bypasses national and international law (in Russia, illegal ways of exporting capital are called flight or leakage).
Intra-company capital - transferred between branches and subsidiaries (banks) owned by the same corporation and located in different countries.
The main reason and prerequisite for the export of capital is the relative excess of capital in a given country. There is a discrepancy between the demand for capital and its supply in various sectors of the world economy, and in order to obtain greater entrepreneurial profit or interest, it is transferred abroad.
The most important reasons for the export of capital are:
The discrepancy between the demand for capital and its supply in various parts of the world economy.
The emergence of the possibility of developing local commodity markets. Capital is exported in order to pave the way for the export of goods, to stimulate demand for their own products.
Availability in countries where capital is exported, cheaper raw materials and labor.
Stable political environment and generally favorable climate in the host country, preferential investment regime in special economic zones.
Lower environmental standards in the host country than in the capital donor country.
The desire to penetrate in a roundabout way into the markets of third countries that have established high tariff and non-tariff restrictions.
The concept of "investment climate" includes such parameters as:
Economic conditions: the general state of the economy (rise, decline, stagnation), the situation in the currency, financial and credit systems of the country, the customs regime and conditions for the use of labor, the level of taxes in the country;
State policy regarding foreign investment: compliance with international agreements, the strength of state institutions, the continuity of power.
A feature of the movement of capital at the present stage is the inclusion of an increasing number of countries in the process of import and export of direct, portfolio and loan investments. If earlier individual countries were either importers of capital or exporters of capital, then at present most countries simultaneously import and export capital.
