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Tony Makin: New trends in transnational investment in the post-COVID-19 era

Updated: Jan 6, 2023

Tony Makin, Professor at the University of Griffith.

Tony Makin is a professor at the School of Asia at The University of Griffith. He holds a Bachelor of Arts, A Bachelor of Economics (Hons), a Master's degree in Economics, and a Doctorate in Economics. His current teaching areas are international economics, macroeconomics, monetary economics and Government Budgeting, and his main research areas are International macroeconomics, International Finance, Asia-pacific Economies, monetary Economics and Government Budgeting.

New trends in transnational investment in the post-COVID-19 era

1. What is the economic benefits of the flow of foreign investment for the host country?

At the industry level, foreign investment improves economic welfare in host economies via new product development and technology transfer, by spurring imitative behaviour and management practices in domestic enterprises, as well as by enhancing competition in local goods and services markets. At the economy-wide level foreign investment increases the domestic capital stock of the host economy which raises the host economy's national income and living standards.

2. The flow of capital is unbalanced. What is the impact of balance on global finance and the macroeconomy? Is it positive for the macroeconomic of the world?

Foreign investment, according to standard theory, should flow to countries that have a relatively high domestic rate of return on capital from those where the domestic rate of return on capital is lower. This means external imbalances arise that reflect international capital flowing to host countries with a relatively high rate of return from those with a relatively low rate of return. Australia and Japan provide an example. Japan has traditionally invested in Australia, so its capital outflow has matched Australia's capital inflow. There are imbalances, yet both countries benefit economically. In other words, theory suggests that such imbalances under conditions where markets are operating relatively freely are not a concern.

3. What measures should state be taken to attract foreign investment and maximize its benefits?

Foreign investment should be allowed, and indeed be strongly encouraged, but only when there is "a level playing field". This means governments in host economies should not try to tilt the playing field in their country's favour to entice foreign investment by imposing strict conditions on transfer of intellectual property or by offering major tax incentives and subsidies to foreign companies planning to invest there.

4. The epidemic has an impact on foreign investment. What do you think of the trend of foreign investment in the future?

Investment generally has been weak since the epidemic. At the same time, countries have become more inward looking and more concerned about "self-sufficiency". Both of these factors will act to dampen trends in foreign investment in the future.

Interviewer: Deng Baoyi

Interview date: June 9, 2021

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