Q: Most foreign investment is done by companies, so why do we often hear about countries investing in other countries, such as “Chinese investment in the United States?”Ī: In some cases, geographic origin is important because different countries’ economies have different characteristics. foreign investment abroad is now in a low-tax jurisdiction. If you look at the overall data, a large share of total U.S. firms have large investments in many countries known for their low corporate tax rates at least in part because they prefer to record a portion of their profits in these countries rather than have all their profits taxed in the United States. firms have, for example, bought Irish firms in order to become Irish and thus take advantage of Ireland’s lower overall corporate tax rate. This is not the most savory aspect of globalization.
(C) Sometimes firms make investments as part of a strategy for reducing their tax burden. If you want to hop over a tariff barrier you can produce inside the country whose market you are trying to sell in. (B) There are frictions at the border such as tariffs or other barriers. If you want to sell access to that network you either need to own a physical presence or rent access to someone else’s network. Think of, say, telecommunications-a huge service that typically requires having a network, which means having cell phone towers and fiber optic cable and all the other equipment needed to knit together a network so that people can talk to each other. Typically, we do not have major international companies providing haircuts, but some big services often require a physical presence, which means direct investment. You have to be in physical proximity to the person whose hair is being cut.
(A) Some things, particularly services, are often difficult to produce remotely. There are several reasons why companies go abroad:
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