From financial crisis to global recovery Essay Example | Topics and Well Written Essays - 3000 words

From financial crisis to global recovery - Essay Example Despite the global economic turmoil, the global FDI inflows rose significantly by 17 percent in 2011 in most of the economies to $ 1.5 trillion. The FDI flows increased in major economic groupings such as developing economies, transition economies and developed economies. Developing and transition economies recorded $ 755 Billion FDI inflows that were driven mainly by robust investments (Lapavitsas, 2012). FDI flows in Europe increased by 18 percent while the flows in the United States declined by 8 percent. Ireland experienced the largest FDI flows due to movements in debt and equity financial markets. The increase in FDI flows in Europe was mainly driven by cross-border corporate restructuring, mergers and acquisitions, and stabilization of the economies (Ramamurti & Hashai, 2011). However, this trend was not even in all European countries since Greece and Germany experienced a decline while countries like France saw an increase in FDI flows. Developing counties accounted for most of the global FDI flows in the first half of 2011 (Shambaugh, 2012). The FDI inflows in developing countries were at $ 684 billion. The FDI flows in transition economies rose by 6 percent in 2011 to reach $ 92 billion. ... The Sub-Saharan African region witnessed $ 37 FDI inflows in 2011 (Shambaugh, 2012). The FDI outflows from Africa were 50 percent lower in 2011 and amounted to $ 3.5 billion and mainly came from Egypt and Libya. FDI outflows from the United States reached $ 397 billion in 2011 due to appreciation of Japanese Yen since Japan was the second largest investor in the US (Shambaugh, 2012). From the above graph of global FDI flows, it is evident that the recent financial crisis negatively affected the global FDI flows. The global FDIs flows are currently on the increasing trend (Breitfeld, 2010). US economy FDI flows and balance of payments The global financial crisis of 2007-2009 led to the decline of the US trade deficit due to slowdown in imports. The US exports increased by 16 percent from 2010 to $ 1,497 billion in 2011 due to increasing economic growth in the economy. The imports also increased by the same percentage during the same period to $ 2,236 billion (Richardson, 2011). Though the two increased at the same percentage, the net effect was an increase in the trade deficit by 15 percent or $ 93 billion. In 2009, the recession led to an 18 percent in US merchandise exports and 26 percent decline in imports (Richardson, 2011). The figures however reversed in 2010 when exports in merchandise increased by 21 percent while the imports increased by 23 percent. In 2011, the trade deficit in goods was $ 738 billion on the BOP but was still lower than the previous peak of $ 836 billion in 2006. The deficit on the current account which includes the trade plus investment income and any unilateral transfers grew from $ 442 billion in 2010 to $ 466 billion in 2011 thus leading to an increase in the current account deficit by $ 24 billion. The