Discussion 2
After studying the second Session Topic entitled ‘Capital Flight and also watching a video on the same topic,
answer the following questions :
1. What causes Capital Flight to happen?
2. Do you think it is better for the government to have more FDI (Foreign Direct Investment) than FPI (Foreign Portfolio Investment)?
My answer :
1. What causes Capital Flight to happen?
What causes Capital Flight to occur is due to events such as political
or economic instability, currency devaluation or the application of capital
controls. Capital flight may be legal, as is the case when foreign investors
return capital back to their home country, or illegal, which occurs in
economies with capital controls that limit the transfer of assets abroad.
2. Do you think it is better for the government to have more FDI
(Foreign Direct Investment) than FPI (Foreign Portfolio Investment)?
In the long run, FDI (Foreign Direct Investment) inflows are more
significant and positively affecting the country's economic growth than FPI
(Foreign Portfolio Investment). FDI has a more positive effect on economic
growth because the investment made is a real investment and lasts a longer
time.
In contrast, the capital obtained from FPI's investments is purely a
financial asset with a shorter term and without the direct involvement of
multinational companies or other investors in technology transfer and company
management.
(SOURCE : BMP ADBI 4201)