This fact can be justified by the data provided within the World Bank database refer to figure 1. We witness this almost every decade: in Germany, after World war two, in Japan after Germany, in South Korea and Brazil, even in England; not long ago in China, and right now in India, Vietnam, Malaysia etc. This may not be possible in many countries as there may not be sufficient foreign currency reserve to accommodate convertibility. In this section, we will discuss the reasons that explain why Foreign Direct Investment is so important for any nation India here and enumerate its positive side. If you invest in some foreign countries, you might notice that it is more expensive than when you export goods. Mankiw 2004 stresses that international trade affects economic growth and can indeed to be regarded as a type of technology in that it converts non-specialized production into specialized production. For an investment into the developing world, the value of the currency can be stretched further than it would be domestically.
Negative Influence on Exchange Rates. The developed countries have shifted some of their pollution-borne industries to the developing countries. But, I must also make a point out what Oluyomi wrote. There is thus a continuing advantage for the developing country. This opens export market for them and their performance metrics improve.
Advantages of foreign direct investment Efficient technology The foreign company is superior in terms of technology and research work. Most of the countries have their own import tariffs and this is one of the reasons why reaching their international trade is quite difficult. Among the measures to minimise risks and allay fears may be mentioned investment treaties, government guarantees, tax incentives, joint ventures, relaxation of restrictions and granting of concessions. This is especially applicable for developing economies. The major victim is automobile industries. This process is usually recognized as being driven by a combination of economic, technological, socio-cultural, political and biological factors.
Local raw materials are usually over exploited by the foreign direct investors. All have equal right to choose their government. Employment opportunity The home country gets the benefit from with the creation of more employment opportunities. In such cases all existing resources and capacities pass into the control of the new investor or get transferred into a new entity in which the existing promoter has a limited role. The companies gradually gain control of the market and exploit the consumers. However, you should weigh down its advantages and disadvantages first to know if it is the best road to take. Returning on the effects on the local labour market, it must be said that while consumption power and subsequently prices rise with supply and demand also risen , there is a distortion and disequilibrium effect on the labour market since local firms cannot catch up with the premium price in wages paid by the multinational companies Economic Watch, February, 2012.
The borrowing country should guarantee immunity from nationalisation and repatriation of profits. They also form cartels to control the market and exploit the consumer. In developed countries, it provides a scope for product specialisation, economies of scale and expansion in inter-industry trade. That way, the best possible outcome can be achieved for everyone involved in the investment. Competitive environment is beneficial to consumers. You have a great chance to earn more profits here.
Improved international relations With Foreign Direct Investment, the international relations among the countries also improve imparting greater peace and understanding across the boundaries. It is always essential for attracting the foreign investors as it is the prime consideration prior to invest their money into foreign countries. . Most host countries especially the developing ones tend to implement policies that favor foreign investors including tax holidays. As a result, economic growth is spurred.
Their capital that could be absorbed by the host economy is invested abroad Agmon, 2003. This has resulted in a change in the advertising and marketing technologies. Lockheed scandal of Japan is an example. Selection of international management talent is complicated by the difficulty of using individuals' performance in domestic circumstances as a basis for predicting how well they are likely to perform when operating outside the. Major differences in the philosophy of both the parties lead to several disagreements, and ultimately a failed business venture. An example of this can be seen in some countries in the East Asian region. The foreign companies have the resources, technology and technical knowhow to start productive ventures in the infrastructure.
It has also been noted that foreign direct investment has helped several countries when they faced economic hardship. There is the threat of massive layoffs when foreign firms are been introduced into the host economy is not in the form of building new facilities and by buying up existing local companies. Examples are Hyundai and Ford car units started at Sriperumbadur and Maraimalainagar in India. Example: Drug trafficking, laundering of money, etc. Foreign direct investment facilitates capital flows in the host countries and also provides consumers with a wide variety of products that are otherwise not produced locally.