Very clear and interesting, thank you. I would have added tax evasion under the negatives. Some countries like Netherlands and Luxembourg (both in the top 5!) have huge FDI in- and outflow but mostly for fiscal reasons.
Basically, it creates a surplus in the financial account (he has a video on financial accounts) But I'll try and give you a brief rundown anyway. In order for a country too support its current account deficit (meaning that it imports more then it exports), it requires a financial account surplus. The entrance of new firms into a country is an FDI Inflow as it puts money into the country and therefore relieves the current account deficit slightly meaning that it provides some money to support the current account deficit. We are importing more then we are exporting and so therefore we need more money to support these excess imports, the money received from the inflow of the FDI supports this by adding to the financial account. Sorry if this isn't clear enough, I definitely recommend you watch the balance of payments video for a clearer explanation. :)
Rebecca Pham because the surplus in financial account can be considered as filling the deficit in current trade account ( both these two accounts are components of balance of payment, so it’s like a trade off)
Thank you so much mate. You’re better than all those Indian guys who’re calling “ hello my friend “ an after 1 minute start talking to their own language 💙✊
I feel like it would be due to investment generally, the upgraded infrastructure brought into the country would allow it to be more productive and push the LRAS( also known as productive potential) outwards. Correct me if I’m wrong though, I’m still learning about economics
@@lvlv7876 I do think so. The video talked about how FDI could increase a country's productive capacity by encouraging capital investment. This capital investment I think could be understood as infrastructure investment in your explanation.
xPSG1 A very, very strong argument. Excellent point - you would then link that to damaging effects on individuals in developing countries and to the economy as a whole
hi I am on the ocr board for economics. Can I use to this and your other videos for my a2 global economy exam. Will you also be covering the stimulus (the pre release material) to figure out questions and possible answers ?
You mentioned FDI can help correct a current account deficit. But how? I thought FDI causes a surplus in the financial account and thereby a deficit in the current account.
hey i know its a really late answer, but I think it's because FDI is a form of investment, improving the quality/quantity of FOP, thereby improving comparative advantage in certain goods as prices are lower for consumers, reducing the need to import certain goods. we assume that trade of goods and services are the bulk of the current account. net increase in net trade means an improvement in current account.
