Question
How the interest-level of a country is affected by FDI ?
Answer: Option B
Answer: (b)
A higher international interest rate will decrease FDI since it means a higher cost of funds in the international market and vice versa. Interest rate is a measure of the cost of capital.
A higher interest rate implies more costly investment and, therefore, the higher the interest rate, the more it is likely to defer FDI and the relationship between FDI and the interest rate is expected to be negative.
Love and Lage-Hidalgo (2000) and Erdal and Tatoglu (22002), amongst others, find that an increase in the interest rate leads to a decrease in FDI. Interest rate and FDI can both be the cause and effect of others.
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Answer: (b)
A higher international interest rate will decrease FDI since it means a higher cost of funds in the international market and vice versa. Interest rate is a measure of the cost of capital.
A higher interest rate implies more costly investment and, therefore, the higher the interest rate, the more it is likely to defer FDI and the relationship between FDI and the interest rate is expected to be negative.
Love and Lage-Hidalgo (2000) and Erdal and Tatoglu (22002), amongst others, find that an increase in the interest rate leads to a decrease in FDI. Interest rate and FDI can both be the cause and effect of others.
Was this answer helpful ?
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