by Sergio Daga
National Center for Policy Analysis
July 26, 2013
Individuals and businesses in one country may transfer wealth to another country by investing in its business enterprises; this kind of wealth transfer is called foreign direct investment. Similarly, citizens of a given country may also put their money in another country’s banks, which will in turn make loans to individuals and enterprises; this activity is known as indirect foreign investment. Yet another option is to buy bonds issued by a foreign government. Individuals and businesses invest in other countries because they can obtain more benefits by investing abroad than inside their own countries.