Benefits and Costs of the Investing Country

  • H. Peter Gray


David Ricardo was a pioneer in the study of political economy and he advocated the creation of an institutional bias in favour of investment at home in preference to investment abroad.1 Almost one hundred and fifty years later, economists were still contending that foreign investment had pronounced negative features.2 In the interim no less a person than John Maynard Keynes argued that foreign investments involved a national cost that the investors themselves would not take into their private calculations, so that some bias in favour of domestic investment was likely to be beneficial for the investing nation.3 The basis of these arguments is nationalistic rather than internationalistic. They were concerned that the external effects of foreign investment ran the risk of depriving the investing country of a resource that it could have used to greater advantage at home. None of the arguments denied that some foreign investment projects might be beneficial for the investing country. The thrust of the arguments must be the first concern of this chapter.


Foreign Investment Domestic Investment Foreign Subsidiary Business Investment Investment Income 
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  1. 2.
    See J. Carter Murphy, ‘International Investment and the National Advantage’, Southern Economic Journal (July 1960) pp. 11–17, and Marvin Frankel, ‘Home versus Foreign Investment: A Case Against Capital Export’, Kyklos (1965) pp. 411–31.Google Scholar
  2. 1.
    Lawrence B. Krause, ‘Trade Policies for the Seventies’, Columbia Journal of World Business (Mar—Apr 1971) pp. 5–14.Google Scholar
  3. 1.
    See E. Cary Brown, ‘Fiscal Policies in the ‘Thirties: A Reappraisal’, American Economic Review (Dec 1956) pp. 857–79.Google Scholar
  4. 3.
    Nat Goldfinger, ‘A Labor View of Foreign Investment and Trade Issues’ in United States International Economic Policy in an Interdependent World ( Washington: U.S. Government Printing Office, July 1971 ) pp. 913–28.Google Scholar
  5. 1.
    See Lawrence B. Krause, ‘Why Exports are Becoming Irrelevant?’, Foreign Policy (Summer 1971) pp. 62–70.Google Scholar
  6. 1.
    This section relies heavily on Lawrence B. Krause and Kenneth W. Dam, Federal Tax Treatment of Foreign Income ( Washington: The Brookings Institution, 1964 ).Google Scholar
  7. 1.
    Perhaps too with greater justification. For a discussion of Nationalism in Latin America see Peter Nehemkis, ‘Latin American Testing Ground for International Business’, California Management Review (Summer 1971) pp. 87–94.Google Scholar

Copyright information

© H. Peter Gray 1972

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  • H. Peter Gray

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