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Global aspects of investment and technology

Suggested answers

Review Exercise 1

1. In economics, the creation of capital goods is known as:
   3. investment
   
   
   
2. The purchase of shares or debentures in an Australian company by an overseas firm is an example of:
   4. Portfolio Investment
   
   
   
3. With the creation of a global market for videos Australian producers will:
   2. become more competitive
   
   
   
4. Transnational corporations are able to influence the global economy through their ability to:
   4. all of the above
   
   
   
5. A Multinational Corporation:
   4. has subsidiaries in a number of countries

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Review Exercise 2

Note: your answers should be close to the following:

1. 1991 total FDI = $142.8 billion

   2000 total FDI = $1285 billion

   1285.2 - 142.8 = 1142.4
   
   1142.4 × 100 = 800%
   
   142.8
   
   Likely factors contributing to this growth include the forces of globalisation such as government financial deregulation policies, rapid growth in ICT and transport technologies, actions and growth of TNCs.

2. 2000 total FDI = $1285 billion
   
   2007 total FDI = $1700 billion
   
   1700 - 1285 = $415 billion
   
   415 × 100 = 32%
   
   1285
   
   The much slower growth rate in the period 2000 to 2007 can be attributed to the global recession of the early 2000s which occurred mostly in industrialised economies (avoided by Australia). Downturns in the European Union, United States and Japan in particular meant a reduction in capital flows and many investors moved their funds back home.

3. 2007 Total global FDI = $1700 billion
   
   2007 FDI to developing countries = $470 billion = 28%
   
   2007 FDI to high income countries = $1230 billion = 72%
   
   
4. Industrial countries receive such a large share of FDI due to the potential for higher returns in industrialised countries resulting from the rapid growth in information and technology industries. High income economies also tend to have more stable political, social and economic systems, thus attracting foreign investment. Towards the end of 2007 many investors in advanced economies moved funds back home.

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Review Exercise 3

1. The sales revenue of many of the largest transnational corporations was greater than the GDP of some developing economies. For example, in 2000 Shell oil company was worth $US355 billion and Toyota was worth $US264 billion, while the GDP of Nigeria (with a population of 150 million people) was only $214 billion. This indicates a significant degree of global inequality.
   
   
2. Some examples are: Mutsui & Company, Nike, Adidas, McDonalds, Pepsi Cola, Coca Cola, Rio Tinto Mining Corporation, Itochu Corporation, AXA Group, Volkswagon Group, Sony, Deutsche Bank.
   
   
3. No answer required.  
   
   
4. d All or any of the following:
   
   Advantages:
   • Increases the levels of economic growth and the standard of living
   • Investment in exporting industries can improve international competitiveness
   • FDI contributes to the level of national savings
   • Development of domestic industries
   • Transnational corporations have access to advanced technology and expertise.

   Disadvantages:

   • Income/profit is transferred overseas
   • Foreign ownership of domestic industries
   • Transfer pricing polices
   • Reduce domestic competition and increase industry concentration.
     
     
5. Toyota suffered declining sales to markets around the world due to the GFC and global recession. This led to falling  profits, turning into an estimated net loss to Toyota Motor Corporation of 550 billion Yen ($US6 billion) by the end of the 2009 fiscal year. (Toyota expects to turn this around to a net profit of 800 billion Yen, or $US8.8 billion by the end of 2010 as the world recovers).

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Review Exercise 4

1. Increased levels of FDI in industries where China has a comparative advantage.
   
   
2. The number of people living on less than $US1 a day fell from 260 million to less than a few million by 2008. The number of people below the poverty line has decreased to 42 million. Consumers in China have access to a greater range of goods and services and incomes are increasing in China.
   
   
3. Greenfield investment refers to new investment expenditure which has been used to increase the productive capacity of the economy e.g. building new factories and development of manufacturing industries.

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Review Exercise 5

1. RAMS and Wizard were non-bank mortgage brokers who acted as ‘go-betweens’ between lenders on the world capital market and borrowers in Australia.

2. The entry of RAMS and Wizard into the home loans market led to cheaper mortgages and greater availability of finance to home buyers.

3. The global financial crisis led to a drying up of finance around the world; mortgage brokers such as RAMS and Wizard were not able to access funds to provide the cheap loans and so they were bought out by the bigger banks in the Australian financial market.  Mortgages then became more expensive (higher interest rates) and less accessible to prospective home buyers.

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