Monday, March 30, 2009

reasons for international Movements of capital (1)

It should be clear that there is considerable mobility of capital across borders in the world economy today.we cannot make a full examination of the reasons for this mobility,but brief mention can be made of possible causes .above all ,economists view the movement of capital between countries as fundamentally no different from movement between regions of a country (or between industries) ,because the capital is moved in response to the expectation of a higher rate of return in the new location than it earned in the old location . Economic agents seek to maximize their well-being .Although many additional reasons for capital movements have been suggested,all imply the seeking of higher rate of return on capital over time .We list and comment briefly on several hypotheses ,many of which have found empirical support.
1- Firms will in invest abroad in response to large and rapidly growing markets for their products.Empirical studies have attempted to support this general hypothesis at the aggregative level by seeking a positive correlation between the gross domestic (and its rate of growth) of a recipient country and the amount of foreign direct investment flowing into that country .

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