Why is foreign direct investment (FDI), being non-debt financial capital, the most preferred way of capital inflow in any economy?
This has however been made a challenge by the factors of globalization, technological change and the increased flexibility presented by the digital currencies. Here's how they influence it: 1. Globalization: Globalization has also brought about the integration of economy across nation and made the wRead more
See lessThis has however been made a challenge by the factors of globalization, technological change and the increased flexibility presented by the digital currencies. Here’s how they influence it:
1. Globalization:
Globalization has also brought about the integration of economy across nation and made the world an economic unit. Coming as new factors beyond the control of central entities are foreign investments, differences in export/import, global economic crises, and others. Inflation or unemployment may have less to do with the central monetary policy since activities in the economy and those on international supply chains become subject to forces beyond interest rates, exchange rates, and the Central Bank’s influence on regulation.
2. Technological Change:
Thus, skill-biased technology change and productivity technologies in the labor markets have undergone some severe changes with shifting automation and AI.
This would pose problems to the normality of the institutional money stock instruments intended to govern employment and inflation rates. For instance, job loss in certain sectors through the use of technology will continue to persist even when interest rates that should spur employment have been set. More importantly, FinTech is proliferating the ability of public access to credits and banking services in a way that could limit the role of the central bank in the financial system.
3. Digital Currencies:
Digital currencies, in particular the decentralized type such as bitcoin, disrupts the traditional monetary systems as these are determined outside the realm of the central bank.
As such cryptocurrencies can now float around without necessarily requiring a central bank’s first-hand involvement, they can now threaten to decrease the power of monetary policy .
Central Bank Digital Currencies (CBDCs) is what the central banks currently view as an answer to the question for resuming the control and stability of a rapidly developing digital financial sector.
On balance, therefore, integration, technological revolution, and crypto currencies pose challenges to the conduct of meaningful monetary policy warranting innovative adjustments by the central banks.
Foreign Direct Investment (FDI) is a crucial measure of capital inflow in the global economy. It refers to the investment made by a foreign individual, company, or government in a business or asset in a foreign country. The importance of FDI can be highlighted as follows: Economic Growth: FDI is a kRead more
Foreign Direct Investment (FDI) is a crucial measure of capital inflow in the global economy. It refers to the investment made by a foreign individual, company, or government in a business or asset in a foreign country. The importance of FDI can be highlighted as follows:
However, FDI is not without its challenges. Some concerns include:
In conclusion, FDI is an important measure of capital inflow that can bring significant benefits to a country’s economy. However, it is essential to strike a balance between the benefits and potential drawbacks and implement policies that promote responsible and sustainable FDI practices.
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