The financial system and foreign investments: a conceptual interrelation in classical economic theory of the 15th–19th centuries

Анотація

Introduction. Foreign investments are a crucial factor in the economic growth of any country, as they contribute to increased production, job creation, and technological modernization. At the same time, the functioning of the financial system determines the efficiency of attracting, allocating, and utilizing foreign capital. The interrelation between these two phenomena is complex and multifaceted: on the one hand, a developed financial system can stimulate the inflow of foreign investments by ensuring transparency, trust, and effective capital management; on the other hand, active foreign investments can influence the development of the financial system by expanding its tools and infrastructure. The purpose is to explore the interrelation between the financial system of the recipient country and foreign investments in classical economic theories of the 15th–19th centuries, highlighting their characteristic features in the context of developing and implementing a policy for attracting foreign direct investments aimed at stabilizing Ukraine's financial system. Methodology. To study the relationship between foreign investments and the financial system in classical economic theories of the 15th–19th centuries, an interdisciplinary approach is applied, combining methods of historical-economic, comparative, and theoretical-analytical analysis. The research utilizes both general scientific and specialized methods, including historical-economic analysis, which involves examining historical sources, works of classical economists (such as Adam Smith, David Ricardo, John Stuart Mill, and others), as well as the socio-economic and political conditions that influenced the formulation of theories on foreign investments and the financial system. The theoretical-analytical approach is used to systematize key concepts regarding the interrelation between foreign investments and the financial system, while the chronological approach enables a sequential study of the evolution of theories on foreign investments and the financial system across different historical periods — from mercantilism to the classical school of political economy. Results. Analysis of existing theories and concepts has shown that the connection between the process of attracting foreign investment and the financial system of the recipient country can be traced at all stages of the development of economic science. Until the end of the 19th century, foreign investment was considered in the context of the intensification of international trade, but even then, attention was focused on the need to regulate the process of attracting foreign capital by such financial policy instruments as taxes and interest rates. It should be noted that all classical theories formed by the end of the 19th century do not allow either to explain FDI as a phenomenon of the international economy or to identify complex interdependencies between it and the financial system of the recipient country, although fiscal and monetary instruments of financial policy have been identified to regulate the process of attracting foreign capital. This, in our opinion, can be explained by the fact that FDI during the above-mentioned period did not play a significant role in the development of countries.

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