The role of foreign investment in the economy

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In the context of globalization,  value of the foreign investment in economic development at all levels and by everyone is recognized, admitted, such as by government agencies, non-governmental or private sector. Their essential importance has been fully shared by developed or developing countries. Foreign investment is a key driver, the fundament of economic growth- everyone agrees with this provision.

The inflow of foreign capital into the host country fills the financial deficit, which is needed to develop and stimulate the economy. Foreign investments have a significant impact on many directions, such as employment growth, increasing incomes of the population, infrastructure creation/upgrade, dynamic circulation of money, which is an important factor for the exchange rate of the national currency. Overall, foreign investments are presented with many social and economic benefits. This is certainly why the state’s interest is to create a political-economic and investment environment that will be interesting and attractive for investors.  The whole range of countries link the long-term development of the economy to increased investment. Although the local (patriotic) type of investment exists, governments always pay more attention to foreign investment, as foreign capital can largely have a positive, real effect on the economy.

Foreign investments have two branches:

1. Portfolio Investments- investing to buy capital issues, similar types of investments are made by interested parties with the help of intermediaries, financial organizations. This organization can be a commercial, private, or state investment bank, fund, etc.

2. Foreign direct investments, which often are referred to as “real investments”. The amount of generosity they bring is enormous. Since these assets represent a fixed capital investment. This type of investment is a solid guarantee for the long-term development of the country’s economy.

According to investment instruments, the foreign direct investment includes:

1. Investment of own capital by companies in another country: capital of branches as well as share in actions of subsidiaries or associated companies;

2. Profit reinvestment: Direct investor’s share of the enterprise’s profit, which is not distributed in the form of dividends and is not transferred to the direct investor’s account;

3. Intra-corporate transfers of capital: it is usually carried out, on the one hand, directly by the investor and on the other hand, between subsidiaries or associates, as well as between branches

If we consider Georgia in the context of the above topic, we can say that Georgia is one of the most attractive countries for attracting foreign direct investment. The sectors that investors are interested in are energy; Transport and Communications; Real estate and construction markets, as well as the processing industry.

Source: https://www.investopedia.com/, https://openscience.ge/

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