What Is the Difference Between Foreign & International Investment?
It is very rare that a sharp distinction is made between foreign and international investment. But there is a difference, and the main distinction is in the form of investment. Foreign investment is a direct investment in the local economy dealing with physical structures like plants, markets and equipment. International investment concerns what is called "portfolio investment" or the financial connection of a firm with global financial markets.
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Features (Foreign)
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The real core of foreign investment is the ability of a company to benefit from moving its physical plant overseas. This can invigorate local markets, position a firm close to its sources of supply and avoid domestic barriers to trade. While this is sometimes called international investment, it is really a transfer of physical wealth from one country to another.
Features (International)
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International investment deals with capital markets that circulate around the world, including stocks, bonds and currencies. They are international in that they do not rest in one country, but regularly circulate globally. "Global" and "international" are closely related terms. Foreign refers to investment in one state or a few. International is stateless.
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Function
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Global markets exist because money flows are very hard to stop. For physical plants, states can expropriate or simply ban them. But being affected by circulating money markets is extremely difficult to control. Money markets and other forms of portfolio investment do not have a state base, but exist among states depending on the nature of the market at any given time.
Significance
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Foreign investment has been around for a long time. Global or international investment is a creation of the late 20th century. The speed of communications and the computer revolution have made it possible for markets to be global in the sense that they are not based, or do not have to be based, in a single country. Foreign investment is based in a single country, where the investment itself exists within the boundaries of one or more states.
Benefits
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One can invest in international currency markets, for example. This is a case of portfolio investment that is largely international. The currency is continually floating from one state to the next, hardly taking "states" into consideration at all. The benefit here is that, as a matter of course, the value of such markets follows capital flows from one area to another. Values exist as determined by the market, not, as a rule, by state policies. In general, it is international bodies such as the International Monetary Fund, rather than states, that control these flows and seek to regulate them. The market rules, not political forces.
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