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The Impact of Foreign Direct Investment on an economy has various levels of importance, depending on the country that we are talking about. If we think about any one country having a set amount of capital, the international flow of capital provides for further growth than would be possible with just internal investment. Thusly, when economies open up, the Impact of Foreign Direct Investment , as well as imports and exports adds new elements to the macroeconomic mix. Most of the developing economies today are in major part funded by foreign direct investment. The opening of capital markets allows for better market optimization; pricing and terms, as well as interest rates can reach a better equilibrium when more players are involved. Thusly, two creditors from countries A and B looking to finance businesses in country C may offer two different sets of terms, and the business of country C will choose whichever terms are more favorable. Furthermore, countries A and B will seek out the most favorable returns they can get for a set amount of risk. Thusly the Impact of Foreign Direct Investment is quite clear. After the burbuja inmobiliaria, or property bubble, of 2007 in Spain as well as the financial crisis that shocked the world, foreign direct investment in Spain dropped dramatically. With the tight credit crunch, and firesale of equities in Spanish businesses, access to cheap capital, even for businesses that were quite safe and profitable became very difficult. When a country’s reputation is high and its inflow stock is high, a tarnished reputation can do serious damage to the macroeconomy. Without stable stock prices, aka a strong equity base, debt financing becomes costly and difficult to obtain. Heightened perceived risk damages FDI inflows, leading to stagnation in the economy. The Impact of Foreign Direct Investment on an economy can vary, but it is safe to say that the more FDI a country relies on, the harder hit it will be in the hour of crisis. Foreign creditors are often the first to pull out in these situations; the geographical distance and lack of familiarity often raises levels of risk aversion. So, the concept of nation branding for a country that relies heavily on FDI is paramount. With a strong reputation comes more FDI and the economy will enjoy a cheaper, more liquid credit market, enabling more efficient allocation of funds and raising the likelihood of good growth. Entrepreneurs will have more incentive to start their businesses, and expansion is no longer a costly pipe dream. If a nation wants to increase its FDI, and sustain it, investors will want to feel safe putting their capital there.
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FDI Strategy, Foreign Direct Investment Strategy, Nation Brand, Impact of Foreign Direct Investment, City Branding,
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