International Capital Flows
Factors Affecting Direct Foreign Investment
1. Changes in Restrictions
New opportunities have arisen from the removal of government barriers.
2. Privatization
Privatization policy allows for expansion of international business because foreign firms can
acquire operations sold by national governments. The primary reason that the market value of a
firm may increase in response to privatization is the anticipated improvement in managerial
efficiency. The trend toward privatization will undoubtedly create a more competitive global
marketplace.
3. Potential Economic Growth
Countries with greater potential for economic growth are more likely to attract DFI.
4. Tax Rates
Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI.
5. Exchange Rates
Firms typically prefer to pursue DFI in countries where the local currency is expected to strengthen
against their own.
Factors Affecting International Portfolio Investment
1. Tax Rates on Interest or Dividends
Investors normally prefer to invest in a country where taxes are relatively low.
2. Interest Rates
Money tends to flow to countries with high interest rates, as long as the local currencies are not
expected to weaken.
3. Exchange Rates
Investors are attracted to a currency that is expected to strengthen.
Impact of International Capital Flows
Factors Affecting Direct Foreign Investment
1. Changes in Restrictions
New opportunities have arisen from the removal of government barriers.
2. Privatization
Privatization policy allows for expansion of international business because foreign firms can
acquire operations sold by national governments. The primary reason that the market value of a
firm may increase in response to privatization is the anticipated improvement in managerial
efficiency. The trend toward privatization will undoubtedly create a more competitive global
marketplace.
3. Potential Economic Growth
Countries with greater potential for economic growth are more likely to attract DFI.
4. Tax Rates
Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI.
5. Exchange Rates
Firms typically prefer to pursue DFI in countries where the local currency is expected to strengthen
against their own.
Factors Affecting International Portfolio Investment
1. Tax Rates on Interest or Dividends
Investors normally prefer to invest in a country where taxes are relatively low.
2. Interest Rates
Money tends to flow to countries with high interest rates, as long as the local currencies are not
expected to weaken.
3. Exchange Rates
Investors are attracted to a currency that is expected to strengthen.
Impact of International Capital Flows
