Which factors led to an increase in trade and FDI after WW2?

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pohnpei397 eNotes educator| Certified Educator

I assume that by FDI, you mean "foreign direct investment."

In my opinion, the end of WWII led to an increase in these things because of the fact that the United States was so much more economically powerful than any other country on earth.  Of all the major developed countries, only the United States was not devastated by the war.  Therefore, it had lots of excess money and was able to use it to buy products from other countries and to invest in those countries.

I would say that the Cold War also had an impact as it made the US wish to invest to prevent other countries from getting closer to the USSR.

Finally, I would say that the Bretton Woods system helped make FDI and trade more predictable and less risky.

krishna-agrawala | Student

Most certainly the Foreign Direct Investment (FDI) in many countries as well as total FDI in all the countries has increased at accelerating rate after the World War II. However it will not be appropriate to attribute this totally or even substantially to after effect of the War.

The increase in FDI is because of the increasing developments in technology accompanied by increasing volumes of production and trade that has been going on for last few centuries. The world presented a scenario of a global economy well before the start of the World War II is well illustrated by the great depression of late 1920's and early 1930's that spread from USA to so many different countries across the world.

The specific developments during the World War II and in the period after it which gave a boost to Globalization and thus indirectly to FDI include the following:

War Related Factors:

  • Rapid advances in technology and management methods made to improve the war efforts.
  • Development of industries to increase production of war material.
  • Development of closer relationship between countries as a result of war. This was in the form of cooperation at governmental levels as well as movement of troops of one countries to other countries increasing their exposure to other countries.

Other Factors:

  • Many countries gaining independence from colonial rules leading to their faster economic development.
  • Advancements in transport and communication technology which facilitated globalization and also made it more profitable.
  • Specific programs taken up by developed countries to increase their trade and influence with the developing countries of the world. The cold war following the World War II gave a further boost to such activities by creating kind of competition between communist and non-communist blocks.
  • Increasing and more effective forums for multinational cooperation by way of organizations such as European Union, World Bank, International Labour Organization and International Standards Organization.