Some developing countries’ citizens are more willing to invest their capital in businesses abroad rather than in a national one. I believe this financial movement is mainly driven by the political and institutional instability that these countries frequently face. Thus, I argue that governments should establish policies and governmental agencies to foster certainty and attract these funds back.
Political instability and institutional uncertainty can discourage investors to direct their money to some countries. It is widely known that most of developing countries pose weaker rule of law and less accountability, as those have experienced years of institutional exploitation by developed nations. Investors tend to prefer countries with a more stable political background and strong institutional design, due to the fact that these asset owners can be better ensured in such States. Investors also seek for better stability, specially since they are highly interested on receiving their money back on the long run. Thus, many stakeholders opt to invest their money in business outside their own developing nation.
Governments can attract such investments back to their country as they alleviate potential issues related to uncertainty and instability. Firstly, the government can create a financial transparency agency, which would help providing information on wheter the rules are being followed or not in a country. Moreover, the government might also develop policies that will insure that investors will receive their money back, in case some happens in a national level. Brazil provides this form of insurance to its investor, which has been widely helping to attract funds.
In summary, investors prefer investing their money in business abroad because they prefer having certainty and stability over prioritising their own nation. Additionally, governments can propose policies and create agencies to regulate the domestic scenario, attracting funds back in the long-term.