What this lesson teaches
I can define globalisation as rising trade and flows of capital and labour, and explain what drives it.
Syllabus 9570, 3.3.1(a). Globalisation, International Trade and Economic Co-operation: Globalisation as the increased trade of goods and services, and flows of capital and labour between countries; Factors affecting globalisation
I can weigh the benefits and costs of free trade and open flows for consumers, producers and governments.
Syllabus 9570, 3.3.1(c). Globalisation, International Trade and Economic Co-operation: Benefits and costs of free trade and flows of capital and labour on:; Consumers - Prices, choice and variety of goods and services; Producers - Size of markets, degree of competition, cost of production and innovation; Government - Macroeconomic objectives (and policy choice)
Make a guess
A foreign fund buys shares in Singapore firms on the stock market. Does this directly add factories and jobs?
- Yes. All foreign investment builds new factories.
- No. It is a financial flow, not FDI.
- Yes, because the firms receive the money.
Show the answer
No. It is a financial flow, not FDI.
Buying existing shares changes who owns a firm. FDI that builds new plants is what directly adds capacity and jobs.
Foreign direct investment brings capital, technology and jobs, but can also bring risks.
Foreign direct investment (FDI) is when a firm builds or buys a lasting stake in a business abroad. It is different from short-term financial flows into shares and bonds, which can leave quickly.
FDI brings capital, which raises productive capacity. It also brings technology, management skills and links to global markets, and creates jobs.
Singapore has attracted FDI from multinationals in pharmaceuticals, semiconductors and finance, which has been a major source of its growth.
Risks include dependence on foreign firms, which may leave if conditions change, and profits flowing abroad, which is one reason Singapore's GNI is below its GDP.
- FDI
- Lasting stake: capital, technology, jobs.
- Financial flows
- Can leave quickly.
Worked example: A new factory versus buying shares
A foreign investor builds a new medical-device plant in Singapore with local training. Separately, a foreign fund buys existing listed shares and may sell them soon.
- The plant is FDI: it adds capital, jobs and skills.
- The share purchase is a financial flow: it adds no new capacity directly and can reverse quickly.
- If the plant receives a government grant, weigh the grant's cost against the benefits to residents.
Watch out for this
All foreign investment is equally beneficial.
FDI that builds new capacity differs from short-term financial flows, which can leave quickly.
Check your understanding
Which inflow most directly raises Singapore's productive capacity?
- A foreign fund buying existing shares.
- A foreign firm building a new factory.
- Tourists spending in hotels, which earns foreign currency.
Show the answer
A foreign firm building a new factory.
Right. FDI adds new capital.