Forms of international capital migration

At the present stage of development of the world economy, one of the main factors in the development of IER is the export of capital. Such forms of IER as international trade in goods, services, technologies have monetary and financial aspects: when carrying out export-import operations, international settlements are carried out or international loans are required, with international labor migration, wage transfers are transferred. Thus, international monetary, credit and financial relations are both a prerequisite for the development of other forms of world economic relations in the world economy, and their consequence and at the same time an independent form of the latter.

In the modern world economy, the international movement of capital is carried out in such forms as direct and portfolio investments, long-term lending, as well as the provision of economic assistance. The subjects of the international capital market are various institutional units: central and local governments, central and commercial banks, international organizations. TNCs are the main actors in international capital flows.

It should be noted that in this area, IER, in contrast to international trade, restrictive measures of state regulation are much less pronounced; on the contrary, most governments seek to attract foreign capital to the national economy, as they contribute to economic growth and the well-being of the population.

The movement of international capital is due to various factors and motives, while pursuing various goals, among which a special place is occupied by obtaining high profitability in various forms: industrial, banking, trade, interest on loans, land rent, etc.

The nature and form of international investment may vary. They can be classified according to various criteria.

By source of origin:

public capital; private capital.

State capital in international usage is also called official. It represents funds from the state budget that go abroad or are accepted from there by decision either directly from governments or intergovernmental organizations. According to the forms, these are state loans, loans, grants (gifts), assistance, the international movement of which is determined by intergovernmental agreements.
These also include loans and other funds of international organizations (for example, IMF loans). But in any case, this is still taxpayers’ money, although it goes to the recipient in different ways.

Private capital is funds from non-state sources placed abroad by private individuals (legal entities or individuals). These include investments, trade loans, interbank lending. They are not directly linked to the state budget, but the government keeps  their movement under review and can, within the limits of its authority, control and regulate them.

By the nature of use, international investments can be:

entrepreneurial; loans.

The former are directly or indirectly invested in production and are associated with the receipt of a certain amount of profit rights in the form of a dividend. Most often, private capital acts here.

The second means lending funds for the sake of obtaining interest. Here, capital from state sources actively acts, but operations with funds from private sources are very significant.

According to the terms of investment, international investments are divided into:

medium- and long-term; Short term.

The first include investments for more than one year. This group includes the most significant investments, since long-term investments include all investments of entrepreneurial capital in the form of direct and portfolio investments (mainly private), as well as loan capital (state loans). Short-term capital is considered to be provided for a period of up to one year. These are usually trade credits granted in order to stimulate exports or imports.

According to the form of control or the purpose of investment, international investments are divided into:

direct investments; portfolio investments.

The former are the investment of capital in the name of obtaining a long-term interest and secure it through ownership or decisive management rights.

The latter do not give the right to control the object of investment, but only a long-term right to income, and even a predominant one in the sense of priority in receiving such income. This finds expression in different types of shares (ordinary and preferred). The International Monetary Fund distinguishes another group – “other investments”, which are mainly international loans and bank deposits.

Foreign direct investment is carried out mainly by:

a) equity participation in the capital of local enterprises, when the investor can really influence the management of this enterprise.

The real impact on the management of the enterprise implies the need for a share of the investor’s participation (share) in the total capital of the enterprise in the amount of more than 10%.

This form of investment covers both the direct formation of a new enterprise and the full or partial acquisition of shares in an existing enterprise. Moreover, the acquisition of the right to subscribe to shares, obligations convertible into shares and other analogues, which by their nature give the right to participate in the capital, are also equated to the acquisition of shares;

b) the creation of new and expansion of existing branches and institutions, as well as the provision of reimbursable advances to them;

c) providing long-term loans for the establishment or maintenance of long-term economic ties with a maturity of more than 5 years. In this case, it is assumed that the lender participates in the direct investment of the borrower’s enterprise or shares the risks arising as a result of the economic activity implemented by the borrower.

Direct investments give the right to directly dispose of a foreign enterprise, and the investor – direct participation in the production management process. In the second case, the right of control over a foreign enterprise is narrowed, and its prerogative is limited to receiving a certain share of profits. Since the main thing in the implementation of direct investments is control, their feature is the presence of dominant positions in management. The IMF considers direct investments to be those that cover 10 percent or more of the share capital and provide an opportunity to participate in the management of the enterprise. In Europe, for example, direct investments include those that amount to 25 percent or more in the authorized capital. If this share is less than 25 percent, then the investment is considered portfolio. In the United States, direct investments are considered to be investments with a share of 10 percent or more in the authorized capital of the enterprise. If the share of investments is less than 10 percent, then they belong to the portfolio.

Portfolio foreign investments include:

a) subscription and acquisition of shares of local enterprises (both in organized markets and outside them), as well as securities (bonds, etc.) of enterprises whose capital is not represented by shares. Equivalent to the acquisition of shares is the acquisition of such securities as subscription rights, obligations convertible into shares or other analogues that by their nature give the right to participate in the capital;

b) subscription and acquisition of exchange-listed loan obligations of local public and private institutions, as well as resident individuals. At the same time, the acquisition by non-residents of securities issued in special circulation or the issue of which does not fall under the characteristics characteristic of exchange-listed securities is not considered a foreign investment;

c) participation in local collective investment funds duly authorized and registered by the authorized state administration bodies. The stock market allows investors to invest in production and corporations to access investments. At the same time, the large-scale development of financial investment institutions ensures an effective flow of capital from industries with a lower rate of return to more profitable ones.

The problem of distinguishing between direct and portfolio investments is of great methodological importance, although the boundaries between them are to some extent arbitrary. A significant difference, however, is manifested in the following signs.

In terms of time of use, portfolio investments are temporary and speculative in nature. Direct ones have a long-term impact on financing the development of the economy.

In terms of the scale of profit and its effectiveness, direct investments are associated with the achievement of higher profitability than portfolio investments.

By role and place in the invested economy, direct investments have a direct impact on the state of the domestic market, create new jobs, contribute to the accelerated introduction of new forms of management, marketing, etc. Ultimately, they change the sectoral structure of the national economy and the place of the state in the system of international division of labor. In the presence of a threat to the national security of the country, direct investment predetermines the alienation of national property to the pole of a foreign investor.

Direct investment, which accounts for about a quarter of the gross volume of cross-border private capital flows, is the main driving force behind the globalization of the world economy and has a decisive impact on the development of national economies of both lending and receiving countries.

The last decade of the last century witnessed a rapid increase in FDI, which increased from $ 202 billion. in 1990 to 1271 billion dollars. in 2000, that is, more than 6 times. The annual growth rate of FDI was 20% in the first half of the 90s and increased to 40% in the second half of the decade, including 45% in 1998 and 55% in 1999.
It is characteristic that for a long period from 1986 to
In 2000, the annual growth rate of FDI exceeded 30% in 65 countries, including Brazil, China, Hungary, Poland, the Czech Republic. Accumulated global FDI at the end of 2000 reached about $6.3 trillion. or about 20% of global GDP, up from 6% twenty years ago. By attracting FDI, recipient countries now account for almost a fifth of gross domestic fixed investment, up from 2% in the early ’80s. FDI plays a critical role in the national investment process for many newly industrialized and transition economies, including Chile (62% of all fixed investment in
2000), Argentina (48%), Brazil (31%), Czech Republic (45%), Bulgaria (41%).

Portfolio investment flows are far behind international lending, but remain an important form of participation by many developed and developing countries in cross-border capital flows. Net portfolio inflows to developing countries in 1999 amounted to about $60 billion, of which 58% were investments in corporate securities and 42% in bond purchases. Characteristically, in the same year there was a net outflow of loans in the amount of more than $ 26 billion. (mainly from East Asia and the Pacific). Among developing countries, the largest volumes of investments in securities of enterprises accounted for the countries of East Asia and the Pacific basin (especially South Korea, China, Thailand, Indonesia), while the placement of bonds among foreign investors was resorted to mainly by the states of Latin America (primarily Argentina, Mexico, Brazil) and Turkey.

In 1992-2002, the Republic of Belarus attracted $1602 million. foreign direct investment. The inflow of foreign direct investment in 2003 amounted to 93 million dollars, portfolio – 619.6 thousand dollars.

Table 7 Resource requirements by component

Top Ten Recipient and Supplier Countries of FDI

(on average for 1998-2000, in % to the total)

Source: UNCTAD. World Investment Report, 2001.

For the host country, foreign investment has a number of significant advantages over other forms of international economic partnership:

First, they serve as a source of investment in the production of goods and services, provide the transfer of technology, know-how, best management and marketing practices; secondly, investments, unlike foreign loans, are not a burden of external debt, but, on the contrary, contribute to obtaining funds to repay it; Thirdly, direct investment contributes to the most effective integration of the national economy into the world economy through increasing external contacts, industrial, scientific and technical cooperation; Fourthly, foreign investments have a positive effect in terms of mastering foreign experience in management, marketing, and personnel training; Fifth, the attraction of foreign investors accelerates the process of denationalization, demonopolization of the economy and the formation of various forms of ownership, etc.

The objectives of attracting foreign capital are very diverse and are determined by the priorities that each country has. Most states use foreign investment for industrialization, increasing the knowledge intensity of production, increasing employment, etc. Many developing countries are building import substitution strategies on the basis of foreign capital, as well as export orientation of production.

It is also necessary to note the reasons for the export of capital.
The main reasons include:

a relative surplus of capital in the donor country, which makes it possible to place capital abroad in search of comparatively greater profitability; the desire to maximize profits through cheaper foreign raw materials, land, labor, lower taxes and requirements for the protection of the natural environment, preferential loans; conquest of the market of another country, which is protected by customs barriers (this behavior is characteristic of the policy of Japanese firms in the United States). In these cases, joint ventures with local firms are more likely to arise, and they become the most characteristic form of foreign entrepreneurship; in some cases, the export of goods from the recipient countries of foreign capital allows a roundabout way to penetrate the markets of third states that have established an embargo on the products of the host countries of the parent corporation. For example, Israel and South Korea have imposed a ban on the import of cars from Japan. But such a ban does not apply to imports of cars produced at branches of Japanese firms located in the United States; implementation of the results of its own scientific and technical research and development, including those prohibited in their own country.

There may also be political reasons for the export of capital, especially state-owned capital. The leading countries of the world are directly interested in a certain evolution of new states, so they use the export of capital as a political means of pressure on them, and only then as economic assistance. The purpose of such export of capital is not to make a profit, but to fulfill certain political and ideological interests. For example, the famous Marshall Plan aimed not only to help the peoples of Western Europe escape poverty, but also to prevent communist penetration, to protect a certain image of social and political thought.

When considering the issue of attracting foreign capital, it is necessary to take into account not only your own interests, but also the interests of a foreign partner. The conditions in the country affecting the inflow of capital consist of a wide range of factors combined under the general concept of “investment climate”. The scale and efficiency of the use of attracted business investments from abroad are directly related to the creation of a favorable investment climate in the country.

Investment climate – conditions for the application of foreign capital in a given country. It is determined, first of all, by economic factors: natural conditions, including mineral reserves, the level of qualifications and the value of the average wage of workers, the state of the economic situation, the capacity of the domestic market and the possibility of selling goods on the foreign market, the state of the credit system, the level of taxation, the development of production and social infrastructure, the policy of the state in relation to foreign capital, the availability of closed for it has industries and regions and preferential terms in other industries and regions. In addition to economic factors, when assessing the investment climate, the political situation in the country is taken into account: political stability, the threat of major social conflicts, the state of crime, etc.

For the country receiving investments, the unfavorable investment climate has a real monetary value, in which material losses are calculated due to the non-receipt of significant investments and the low efficiency of working foreign investments.

Currently, most countries of the world have created a favorable investment climate for foreign investors. The legislation of many states recognizes the right of any person (natural and legal), regardless of their citizenship and nationality, to carry out business activities and establish firms in their territory.

An effective form of attracting foreign capital is free economic zones.