Foreign Direct Investment, Foreign Institutional

Investment, Foreign Trade Policy

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Introduction

• Foreign direct investment (FDI) involves a company from one country

investing in a business in another country for the purpose of establishing
business operations.

• Foreign institutional investment (FII) refers to investments made by

foreign institutions like mutual funds, pension funds, and hedge funds in
the financial markets of another country.

• Foreign trade policy encompasses a country's regulations and agreements

regarding trade with other nations, including tariffs, quotas, and trade
agreements.
Importance of FDI

• FDI can bring in new technologies and management practices to the host
country, stimulating economic growth.

• FDI can create job opportunities in the host country and contribute to skill
development of the local workforce.

• FDI can enhance export competitiveness by improving the quality and

quantity of goods produced.
Benefits of FII

• FII can provide liquidity and stability to financial markets in the host
country.

• FII can bring in expertise and diversification to the investment landscape

of the host country.

• FII can boost capital formation and economic growth by attracting foreign
capital.
Goals of Foreign Trade Policy

• To promote exports and reduce the trade deficit by offering incentives and
support to exporters.

• To protect domestic industries from unfair competition by imposing tariffs

and quotas on imports.

• To enhance economic diplomacy by negotiating trade agreements with

other countries for mutual benefit.
Factors Influencing FDI

• Political stability and transparent regulations in the host country can attract
FDI.

• Market size and growth potential of the host country are key factors for
foreign investors.

• Infrastructure, skilled labor force, and access to resources also influence

FDI decisions.
Risks of FII

• FII can lead to volatility in financial markets due to sudden inflows or

outflows of foreign capital.

• FII can expose the host country to external shocks and economic
instability.

• FII can result in speculative activities that may disrupt the domestic
financial system.
Tools of Foreign Trade Policy

• Tariffs are taxes imposed on imported goods to protect domestic industries

and generate revenue for the government.

• Quotas limit the quantity of imported goods to protect domestic producers

from foreign competition.

• Trade agreements, such as free trade agreements and preferential trade

agreements, promote trade liberalization and market access.
Trends in FDI and FII

• Emerging markets like China and India have become attractive destinations
for FDI and FII due to their growing economies and large consumer
markets.

• Technological advancements and digitalization have facilitated cross-

border investments and trading activities.

• Sustainable investing and environmental, social, and governance (ESG)

factors are increasingly influencing foreign investment decisions.
Challenges of Foreign Trade Policy

• Protectionism and trade wars can disrupt global supply chains and hinder
international trade.

• Non-tariff barriers, such as regulations and standards, can create obstacles

for exporters and importers.

• Currency fluctuations and exchange rate volatility can impact the

competitiveness of countries in international trade.
Conclusion

• Foreign direct investment, foreign institutional investment, and foreign

trade policy play crucial roles in shaping the global economy and fostering
international economic cooperation.

• It is essential for countries to strike a balance between promoting foreign

investments, protecting domestic industries, and ensuring fair and
sustainable trade practices.

• Continuous monitoring, evaluation, and adaptation of foreign investment

and trade policies are necessary to address evolving economic challenges
and opportunities in a rapidly changing world.