investment

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Factors that affect foreign direct investment (FDI)

Readers Question: why some countries are more successful in attracting Foreign Direct Investment than others? Foreign direct investment (FDI) means companies purchase capital and invest in a foreign country. For example, if a US multinational, such as Nike built a factory for making trainers in Pakistan; this would count as foreign direct investment. Factors affecting foreign direct investment 1. Wage rates A major incentive for a multinational to invest abroad is to outsource labour intensive production to countries with lower wages. If average wages in the US are $15 an hour, but…

Investment in UK – Business and Public Sector

Investment in UK – Business and Public Sector

  Total UK Business investment since 1980, slow recovery from 2009. (seasonally adjusted.) Business investment in past ten years Source: ONS NPEN From 2007 to 2010 we see a 22% fall in private sector business investment. This was the result of Banking crisis – banks didn’t want to lend Fall in consumer confidence Recession, which caused firms to hold bank from investment Recovery in business investment since 2010 From a low basis and 20% fall Helped…

Importance of Bank Lending to UK Economy

Readers Question: What is the importance of bank lending to the UK economy? Bank lending plays an important role in influencing levels of consumer spending, investment and economic growth. When bank lending reduced at the start of the credit crunch in 2008 – this decline in bank lending was a significant factor in causing the 2008 recession. This graph shows that lending to UK households and business was growing rapidly during the period…

Gross Fixed Capital Formation

Gross Fixed Capital Formation

Gross fixed capital formation is essentially net investment. It is a component of the Expenditure method of calculating GDP. To be more precise Gross fixed capital formation measures the net increase in fixed capital. Gross fixed capital formation includes spending on land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings. Disposal of fixed assets is taken away from the total. Gross fixed capital formation…

Impact of a Fall in Public Sector Investment

Impact of a Fall in Public Sector Investment

Source ONS | NTV A possible unit 4 A Level question this summer could be: Discuss the Impact of a fall in public sector investment on the UK economy? The graph shows a fall in public sector investment from 3.5% of GDP in 2008  to 1.5% in 2011. This means cuts of approximately £30bn a year. It means the government is spending less on capital investment projects such as new schools, new roads and other infrastructure investment. That is quite a significant fall….