Monthly Archives: October 2012

The Relationship Between Cost of Electricity and Foreign Direct Investment

The relationship between the cost of electricity and foreign direct investment is an interesting one. It is a situation where we tend to see countries where the cost of electricity is low attracting more foreign direct investment than the countries where the cost of electricity is high. That is, of course, assuming that other factors are held constant. Whatever the case though, it is appreciated that the cost of electricity is second only to the cost of labor, as a determinant of how easily a given country attracts foreign direct electricity.

If, for the sake of illustration, we take the cars in the current 7 passenger vehicles list, you will quickly notice that most of them, like the Mazda car and the Acura SUV are made in countries where the cost of factors like electricity is low. That is how the cars in question are able to compete effectively in the international markets, even in countries that have their own car manufacturing industries like the United States.

Through massive investments in electricity generation, or strategic partnerships with countries that have surplus electric power to sell, some nations are able to lower their electricity costs, thus in turn attracting more foreign direct investment.