Foreign Investment, Exports, & National Income
Why does a country remains poor and difficult to move forward? Some say that in order for an advanced economy, people in the economy should be able to make an investment. However, people in poor countries have no savings.
Because do not have savings, they can not invest. Unable to invest, they remain poor. Rings like this are often called the poverty trap.
Therefore, according to this theory, a way out of poverty trap is to bring in investment from outside the community itself. This means that need foreign investment.
With the entry of foreign investment, increase revenue opportunities and out of poverty may increase. Another completion to exit the poverty trap is through family planning.
Families in poor countries usually have many children. As a result, consumption is too high, so nothing is saved. With family planning, expenses for children can be reduced.
In addition, parents can be more free to work to get out of poverty. Then, there will be savings, and savings can be used for investment, so get out of poverty.
Another theory says that an economy remains poor because of society’s purchasing power is low. They do not dare produce in large quantities, because they know their production will not be sold in their economy. Although large populations, according to this theory, poverty causes limitations in the domestic market.
So, the solution is to export, domestic production is sold to other countries whose economies have been advanced. Country called the “Asian tigers” (South Korea, Hong Kong, Taiwan, and Singapore) is often called this policy has done three simultaneously.
In the 1980s, the world marveled at the rapid progress clucking in their economy. Since then, many countries that want to repeat the success cases of four Asian tigers, namely family planning, foreign investment and exports.
Many developing countries, including Indonesia, and has succeeded for the planning. And family programs, there is a trend of foreign investment and exports are considered famous in the economic development of developing countries.
Countries that have advanced developing countries were often taught about the importance of foreign investment and exports. They often say they want to help developing countries, so they make an investment in developing countries and encourage exports from developing countries.
Approximately 30 years have passed since the emergence of admiration at the success of the four Asian tigers. Now the question arises, is it true of foreign investment and exports increase the national income? In macroeconomics, there is a very famous formula, namely that the national income equal to the sum of consumption (domestic), investment (domestic), government spending, and exports minus imports.
Therefore, it is clear according to this formula, that investment and exports to increase national income. But in the macro economy, we also learn, that there are two kinds of measuring national income. First is the gross national product (gross national product / gross national product).
This concept of adding up the revenues received all Indonesian citizens in a given period (usually a year), did not view their stay in Indonesia or other countries. The concept of GNP does not include income foreigners working in Indonesia. The second concept is the gross domestic product (gross domestic product / GDP).
This concept of adding the incomes of all residents living in Indonesia, did not view the citizens. Thus, the concept of GDP includes the income earned by foreigners who work in Indonesia.
Moreover, GDP does not include the income of Indonesian citizens who work in other countries. If not many foreigners working in Indonesia, and not many Indonesian people to work in another country, measured by the two concepts would produce similar numbers.
However, with increasing foreign investment and foreigners working in Indonesia, GDP could be bigger than the GNP. This means that foreign investment would increase GDP, but not necessarily increase the GNP. Foreign investment can increase the GNP, if the investment was to create a large revenue for the Indonesian people.
What if the foreign investment it made in export-oriented activities? The impact on GDP would be even greater, because the increase in exports means that the increase in national income, especially when measured by GDP.
However, the impact on GNP is not necessarily large, depending on whether the export activity was able to increase incomes in the country of Indonesia. So, if the amount of foreign investment can be used as an indicator of the success of our economic development?
The answer depends on how we measure the national income. If we measure the national income with the concept of GDP, foreign investment would increase the national income. However, if national income is measured by GNP, the total foreign investment does not necessarily have a significant impact on national income.
New foreign investments have a significant impact when an Indonesian citizen who lives in Indonesia enjoy most of the foreign investment. The difference in meaning of foreign investment will be greater when foreign investment in export-oriented.
Besides differences in measurement concepts of national income (GNP or GDP), the increase in exports also means that goods produced in Indonesia, more and more into international markets, which were sold internationally and is usually much more expensive than the domestic market.
However, income of Indonesian citizens are often not able to follow the international price. Even so, a citizen of Indonesia has to buy Indonesia’s production with international prices. This is the phenomenon of “global consumers with local revenues.” Consequently, they could not afford the production of Indonesia.
Furthermore, products sold in Indonesia is more bad production quality, so it can be sold more cheaply. However, we do not need anti-foreign investment and export promotion. We still need foreign investment and increased exports.
However, we need to remember that foreign investment and export promotion is not the belle of our development. The more advanced countries to invest in Indonesia because they see a profitable business opportunities for them, not because they want to help us.
They want Indonesia to increase exports not because they want to help us, but because they want to get cheap goods. It is time for us to think clearly in response to foreign investment and increase exports.
It’s not the time to have antipathy to foreign investment and increase exports. No time anymore to believe all that foreign investment and increased exports would increase our revenue.
Indeed, be difficult to make a decision. But, that’s the challenge. Currently, we and many other countries in the world, more often using GDP. Every three months we reported GDP growth. Maybe, it’s time, once every three months, we also reported the development of the GNP.
Tags: economy, investment