Foreign Investment: France vs. Italy
[i:deba0d65fd]Foreign Investment: France vs. Italy[/i:deba0d65fd]
Econ 242
Italy, the sixth largest industrial economy in the world, only trails France by two spots in the overall world rank yet trails France by drastic propositions when it comes to its foreign investment position. The international economic trends that the two countries exhibit in the past decade are miles apart as are their individual symptoms. Why has France's success in becoming a global economic power surpassed that of Italy? This paper will explore both the inward and outward investment positions of France and Italy and reflect on why the two European nations rank where they do. My initial findings of the two foreign investment positions are presented on Dunning's J-curve:
The J-curve shows a net outward investment (NOI) for Italy as $59.3 per capita, a figure significantly lower than France's $248 per capita. More specifically, while France's gross outward investment (GOI) is, on average, similar to its level of gross inward investment (GII), Italy displays a different picture. Instead, domestic investors seem to be lured to the foreign markets while investors outside Italy are not being enticed to invest directly in Italy. While both countries have recognized the importance of integrating their traditional economies into the global economy, achieving internationalization of domestic firms while simultaneously increasing openness in the home market would prove to be a tricky feat.
Gross Domestic Product
France's real GDP growth enjoyed high rates of growth, particularly in the mid and late 1990's which was accompanied by an impressive decline in inflation, averaging just under 2% throughout the 1990s and fell to .6% in 1999. France's exports and imports account for about 50% of its GDP, making the country's external sector vital to its economic growth. In addition, GDP growth was fueled by increases in household consumption and, more recently, by business fixed investment. After years of weakness in the 1990s, corporate investment has improved greatly, as firm are trying to increase capacity utilization (shown by appendix 4) and integrate new technologies, creating high net earnings for French companies. While this improvement in GDP reduces France's government budget deficit and unemployment level, according to CountryWatch, wage increases may contribute to maintaining inflation in the one-to-two percent range. Overall, France's growth has created a favorable environment for continuing expansion, both inward and outward, helping to further feed...