C. Investment from Abroad
1. Saving by domestic residents is not the only way for a country to invest in new capital.
2. Investment in the country by foreigners can also occur.
a. Foreign direct investment occurs when a capital investment is owned and operated by a foreign entity.
b. Foreign portfolio investment occurs when a capital investment is financed with foreign money.
3. Some of the benefits of foreign investment flow back to foreign owners. But, the economy still experiences an increase in the capital stock, which leads to higher productivity and higher wages.
4. The World Bank is an organization that tries to encourage the flow of investment to poor countries.