Answer to Question #245980 in Macroeconomics for Kunal

Question

It is observed that investors from countries with higher GDP are interested in investing in countries with lower GDP.

1. What is the motivation for the investors to do so? (3)

2. What is the benefit for the countries with lower GDP? (3)

3. Do you think that countries with lower GDP will experience higher economic growth due to this? Explain your answer briefly

Answer 1

1.

Investors are motivated by the urge to diversify their investment portfolio and expand beyond their home market and also in order to obtain higher returns than are possible in their home market.

2.

Investment in countries with lower GDP has the following benefits to the countries:

• Enhancement of skill base of host economies.
• Facilitation of the transfer of technology and knowledge.
• Boost in the competitiveness of foreign firms and enabling their access to the market.

3.

Countries with lower GDP will experience higher economic growth due to this. This is because there would be creation of new and value adding jobs which will lead to increase in income and more purchasing power of locals. The manufacturing and the services sectors will be boosted. This will result in overall boost in targeted economies and thus significant economic growth.