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...about globalization, they often first think of the increasing volume of trade in goods and services. Trade flows are indeed one of the most visible aspects of globalization. But many analysts argue that international investment is a much more powerful force in propelling the world toward closer economic integration. Investment, often alters entire methods of production through transfers of know-how, technology and management techniques, and thereby initiates much more significant change than the simple trading of goods.
Over the past ten years, foreign investment has grown at a significantly more rapid pace than either international trade or world economic production generally. From 1980 to 1998, international capital flows, a key indication of investment across borders, grew by almost 25% annually, compared to the 5% growth rate of international trade. This investment has been a powerful catalyst for economic growth.
The tremendous growth in levels of foreign direct investment is a recent phenomenon and is one of the most powerful effects - and causes -- of globalization. In 1982, the global total of FDI flows was $57 billion. By the year 2000, that number had grown to $1271 billion - nearly twenty times the level two decades earlier.
But as with many of the other aspects of globalization, foreign investment is raising many new questions about economic, cultural and political relationships around the world. Flows of investment and the rules which govern or fail to govern it can have profound impacts upon such diverse issues as economic development, environmental protection, labor standards and economic stability.
What Are the Different Kinds of Foreign Investment?
International investment or capital flows fall into four principal categories:
Commercial loans. These primarily take the form of loans by banks to foreign businesses or governments.
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