Foreign Direct Investment
Developing countries and emerging economies have in the last few years increasingly come to see Foreign Direct Investment (FDI) as a source of economic development and modernisation, income growth and employment. Countries have more and more opened up for FDI. In the last decade of the 20-century, many countries moved away from the radical stance prohibiting much FDI toward a more liberal view. Pursuing a less restrictive policy toward FDI, liberalising their FDI regimes and pursuing other policies to attract investment. One result can be seen in the sudden increase in the volume of FDI worldwide, which has been growing twice as fast as the growth in world trade. Yet, the benefits of FDI do not increase automatically and evenly across countries, sectors and local communities. The challenges are primarily directed toward host countries, which need to establish an environment for investment. Host countries tries to maximise the benefits from FDI, and minimize the costs. Developing countries fear both that foreigners will invest in their country and that they will not invest. On one hand they fear exploitation and on the other hand they are concerned of lack of access to foreign tech
The host country is the nation where FDI is located. FDI can make a positive contribution to a host economy through the resource transfer effect, the employment effect, the balance of payment effect, and the effect on competition and economic growth. The home country’s balance of payment may suffer from the initial capital outflow needed to establish the foreign subsidiary. However, this is a one time event, and the effect is usually more than offset by the following inflow of foreign earnings. Another reason for a negative effect on the balance of payment can occur if the intention of the foreign investment is to provide the home market from a low cost production cost, or if the FDI is a substitute for direct export. If the investment is undertaken solely as a substitute for domestic production the home country may be concerned about the employment effect. By moving the firm to a foreign country they also move the jobs away from local employees, and if the country is suffering from unemployment this might be very negative for the home country. The home country may also benefit from their firms FDI in foreign markets. The three major effects are: How can multinational enterprises affect economic welfare?
Some topics in this essay:
FDI FDI,
FDI MNEs,
Drawbacks FDI,
International Economics,
Investment MNE,
Countries FDI,
Direct Investment,
host country,
home country,
balance payment,
United FDI,
Investment FDI,
human capital,
Introduction Developing,
economic growth,
benefits fdi,
balance payment effect,
payment effect,
employment effect,
direct investment,
foreign direct,
foreign direct investment,
effect balance payment,
deterioration balance payment,
account host country,
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Approximate Word count = 2347
Approximate Pages = 9 (250 words per page double spaced)
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