Question

What is the impact of a US-local business market (any industry of your choice), which takes its revenue/profit and reinvests it into a foreign entity? Simply stated, if a local business were to make its profit here, but then take that profit to a foreign nation, instead of back into our market.

Answer 1

If a firm which operates in the domestic country invests its profits in a foreign nation, it can have several implications. Firstly, we should understand the impact of this action on the domestic country itself. The impact is essentially the opportunity cost of this money. The strength of the economy is reduced. This investment if invested in the domestic country could aid the development of the nation. But this does not mean that investing profits is only bad for the domestic nation, when profits are invested abroad as investments, higher rate of return can be earned by diversifying and optimal investment. This would finally lead to the growth of the domestic nation.

This profits when invested in the foreign nation may help in the growth of the foreign nation as has been proved by the stories of many emerging nations. It was observed that most of the growth in the emerging nations was because of the foreign direct investments. These investments when they come to the foreign nation create jobs and enable them to get better technological facilities.