Balance of Payments Problems from Direct Foreign Investment

  • H. Peter Gray


The acquisition of real foreign assets by citizens of the investing nation will exchange the national currency for foreign currencies. In this way the process involves the whole national economic unit in the need either to generate a positive rate of international saving or to permit a reduction in the nation’s international liquid asset position. When liquid assets have eventually been reduced to some minimum acceptable level, the establishment or the expansion of a foreign subsidiary makes international saving mandatory. The intricacies of the international transfer process and the strains and costs that balance-of-payments considerations can impose upon the residents of the investing country are sufficiently important to warrant a chapter to themselves.


Direct Foreign Investment Foreign Investment Direct Investment Foreign Currency Foreign Asset 
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  1. 1.
    W. B. Reddaway and Associates, Effects of U.K. Direct Investment Overseas: Interim Report and Final Report (Cambridge: Cambridge University Press, 1967 and 1968 ). G. C. Hufbauer and F. M. Adler, Overseas Manufacturing Investment and the Balance of Payments ( Washington, D.C.: U.S. Treasury Department, 1968 ).Google Scholar
  2. 1.
    This argument is developed formally in J. David Richardson, ‘Theoretical Considerations in the Analysis of Direct Foreign Investment’, Western Economic Journal (Mar 1971) pp. 87–98.Google Scholar
  3. 1.
    See Lawrence B. Krause, Sequel to Bretton Woods (Washington: The Brookings Institution, 1971) Ch. 1 for a succinct description of both Nixon’s policy and its implications.Google Scholar

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© H. Peter Gray 1972

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  • H. Peter Gray

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