How Economic Globalization Changes International Investment Decisions

Abstract

This paper explains the need and development of new economic models to evaluate the possible outcomes of foreign investment. I consider the importance of foreign investment to emerging economies in a global economy, the effectiveness of traditional economic theory to accurately identify and quantify non-financial factors that affect investment outcomes, and the appearance of new economic models to more accurately reflect the complexity of foreign investment.

Following an extensive review of publicly available data, I find that capital flows to emerging economies is less than capital flows from developing countries, thereby producing a net loss of productive capacity. I conclude that, despite the use of new economic models, the level of global foreign investments by investor nations will continue to decline over the medium term due to a rise in anti-trade rules and regulations to retain capital and secure domestic employment within the borders of the industrialized investing nations.