Impact of Fdi on Host Countries

1. IMPACTS OF FDI ON HOST COUNTRIES

* The Advantages of Foreign Direct Investments (FDI)

No region or country can fully satisfy the needs of its people or does not need to dispose of its surplus production. This has led to the interdependence of world economies. The developed countries need market for their finished goods and raw materials for their industries from developing countries. On the other hand, developing countries need financing and technology from developed countries. This interdependence results in international trade and foreign investment. The developed countries practice foreign direct investment to benefit from the low production cost, ready market and tax breaks offered by developing countries.

Economic Development: Foreign direct investments assist in the economic development of the host country. The foreign investors put up good infrastructure within the host country, which in turn lowers the cost of doing business in that country while increasing effectiveness. In the long term, these improved infrastructure benefits uplift the economy of the host country. Foreign investments also create employment opportunities for the citizens of the host country and, therefore, improve their standards of living.

Avoid Trade Restrictions: Foreign direct investments allow the foreign investing companies to avoid punitive trade restrictions from the host countries. These restrictions make it difficult for the foreign investing companies to access their markets and still make profits. Through foreign direct investments these companies are able to produce inside the host countries and therefore they have unlimited access to the market.

Tax Incentives: Developing countries place import tariffs on imported goods to protect their own firms against unfair competition. On the other hand, they create tax incentives to attract foreign direct investments that bring with them capital facilities, and organizational and managerial practices, as well as...