different countries (i.e., equalization is has not
materialized).
5
Two Major Reasons for Portfolio Investment
1.nal Trade: But why?
3
Size of the Flows
Current data from the Bureau of Economic Analysis (important link is provided below). Try to use and experiment with it.
WWW link
4
2. Risk Diversification.
The factor price equalization theory shows that factor returns should equalize after free trade.
Therefore, factor prices remain consistently different across countries (i.e, equalization is unlikely to occur).
However, full free trade may not occur : Non-tradable goods; Transactions costs; Government restrictions on trade).
Factor prices thus largely remain unequal across
That is, the investor holds shares of firms in anther country but is not involved in the management;
Capital is repatriated from the host country to the home country only when the investment is profitable.
Corporations
2. International Movement of Labor (International Migration)
2
Types of International Resource Movement
1. International Movement of Capital (International Investment Flows)
If this is the case, then there would not be two-way investment. That is, capital would have been flowing only to countries where the return is higher (capital abundant countries). What then explains the flow to labor abundant countries?
Two Major Reasons for Portfolio Investment
1. As Substitute for International Trade. But Why?
The factor price equalization theory shows that factor returns should equalize after free trade.
a. Portfolio Investment
Investment in a foreign country where an investor takes a small stake in an enterprise, either directly or through stock exchange.
What then explains the flow of capital to labor abundant countries?
7
Two Major Reasons for Portfolio Investment
1. Substitute for international trade when factor prices fail to equalize.
Int-Econ-Ch09-S2012-InternationalEconomics-国际经济学课件
Types of International Resource Movement
1. International Movement of Capital
a. Portfolio Investment b. Foreign Direct Investment (FDI)---Multinational
Portfolio Investment thus takes place to take advantage of the higher returns available in some nations (i.e., happens as a substitute for trade). 6
Two Major Reasons for Portfolio Investment
1. Substitute for international trade when factor prices fail to equalize.
If this is the case, then there would not be twoway investment. That is capital would have been flowing only to countries where the return is higher (capital abundant countries).