Fdi Roles and Impact

1798 Words8 Pages
Explain the arguments for and against the role and impact of FDI. (Due Week 6 tutorial) Foreign Direct Investment is a practice that has become an everyday part of the world economy, whilst it has become mainstream it has many advocates and many critics, this essay will discuss arguments for and against FDI, the role it plays and both the short term and long term impacts in depth. Foreign Direct Investment is the construction, investment, and purchase of tangible assets whether they be machines, enterprises, buildings, factories and land in one country (‘host’ country) by firms from another (‘home’ country). It does not include investment in stock markets. A rising access to FDI is viewed as one of the crucial benefits of globalisation due to changes in capital formation (net capital accumulation during an accounting period), technology and knowledge transfer, higher wages and increased job opportunities. Open economies with skilled workforces and a favourable growth forecast usually draw larger amounts of foreign direct investment than closed intensely regulated economies. The problem that critics find with FDI stems from the fact that even though levels of FDI tend to be buoyant during periods of economic instability, there is the possibility of FDI negatively affecting the net capital flow of a lesser developed economy notably if it does not have a healthy and constant FDI “schedule”. The role of FDI takes on various forms whether it be for the Investor or the Economy, the role of FDI for an investor can be listed as; * Increasing foreign market share – to make a Multination Enterprise’s (MNE) presence felt more in a foreign market as well as to promote the brand on a global scale * Defend market share – FDI enables a MNE to regain some market share by either investing in a new country or by investing more into a country that has already had
Open Document