Foreign investment

Definition

Foreign investment refers to the financial commitment made by individuals or entities from one country to acquire assets or establish businesses in another country. This practice is crucial for stimulating economic growth, transferring technology, and creating jobs in the host country. During the implementation of policies like perestroika and glasnost in the Soviet Union, foreign investment became a focal point as the government sought to revitalize its struggling economy by opening up to international markets and capital.

5 Must Know Facts For Your Next Test

1. Foreign investment was encouraged during perestroika as a means to attract Western capital and technology to modernize the Soviet economy.
2. The introduction of foreign investment marked a significant shift from the previously closed Soviet economic model towards more market-oriented practices.
3. Many Western companies were hesitant to invest in the Soviet Union due to concerns about political instability and the lack of a reliable legal framework.
4. Increased foreign investment during this period led to the establishment of several joint ventures between Soviet enterprises and foreign firms, promoting economic collaboration.
5. The impact of foreign investment was mixed; while it provided much-needed capital and expertise, it also raised fears of exploitation and loss of sovereignty among some Soviet citizens.

Review Questions

• How did foreign investment relate to the economic goals of perestroika in the Soviet Union?
  • Foreign investment was a critical component of the economic reforms associated with perestroika, as Gorbachev aimed to transition the Soviet economy from a centrally planned model to one that incorporated market mechanisms. By opening up to foreign investors, the Soviet government hoped to inject capital, technology, and management expertise into its struggling industries. This strategy was seen as vital for modernizing production processes and boosting overall economic performance.
• Evaluate the effects of glasnost on foreign investment flows into the Soviet Union during the late 1980s.
  • Glasnost fostered a more open environment for dialogue and transparency, which contributed positively to foreign investment flows into the Soviet Union. As the government became more transparent about its policies and intentions, foreign investors gained more confidence in making commitments. However, this openness also led to increased scrutiny from citizens regarding foreign influence in their economy, leading to a complex interplay between welcoming investments and managing public perceptions.
• Discuss how the emergence of foreign investment influenced the political landscape in the post-Soviet era.
  • The influx of foreign investment after the reforms catalyzed significant changes in the political landscape of the post-Soviet era. As new businesses emerged and economic opportunities expanded, it created a class of entrepreneurs and business leaders who began to challenge traditional political structures. This shift not only contributed to economic liberalization but also sparked debates around national sovereignty, regulatory frameworks, and how to balance foreign interests with domestic priorities, ultimately influencing the trajectory of newly independent states in their transition towards market economies.

Related terms

perestroika:

A political and economic reform initiated by Mikhail Gorbachev in the 1980s aimed at restructuring the Soviet economy through increased efficiency and openness.

glasnost:

A policy of openness and transparency in government and society, introduced by Gorbachev, which encouraged public discussion and debate about political issues.

joint venture: A business arrangement where two or more parties collaborate to undertake a specific project while sharing the risks, profits, and management responsibilities.