Question

Does Geographic Location matter in International Trade and International Investment ?

Answer 1

Absolutely, geographic location plays a critical role in international trade and international investment.

International trade- Transport is very convenient and hazard-free in mid-latitude climate and coastal areas, thus contributing to the growth of international trade. On the other hand, high-latitude climate, cold weather, mountainous areas and traffic blocks are very challenging to international trade. Additionally, international trade should consider bilateral trade between the neighboring countries which impacts the geographic location.

International investment or Foreign Direct Investment (FDI)- One of the major determinant for a company for international investment is the geographic location. Companies investing in foreign countries prefer countries that are geographically well placed which facilitate investment opportunities, optimum allocation of capital, and reduced cost of capital in the business, availability of human resources which contribute to the economic growth of a country. Additionally, the volume of trade between two countries is determined by GNP (Gross National Product) between the host country and the home country. The geographic distance between the two countries act as the economic centers plays a critical role in FDI. FDI is influenced by the demand and supply between countries thus accessing the foreign capital. Fixed costs also are determinant for FDI. For example, fixed set up cost in a remote geographic location is serious determinant of FDI.