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THE CONSEQUENCES OF FOREIGN DIRECT INVESTMENT by Joshua Smitth
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THE CONSEQUENCES OF FOREIGN DIRECT INVESTMENT |
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Business,Travel & Tourism
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Foreign direct investment is “an investment made by a company or entity based in one country, into a company or entity based in another country.” It is opposed to foreign indirect investment in that the latter is a passive investment in the securities of another country such as stocks and bonds . Asta Žilinske states that there is empirical evidence of the Impact of foreign direct investment on the host country’s economy. However, he states, there is also evidence that foreign direct investment is a source of negative effects . Regarding the positive Impact of foreign direct investment, foreign direct investment presents several advantages for both investors and recipients, which have to be taken into account when considering a foreign direct investment strategy. Investors can see their risk reduced since cross-border investment allows them to diversify their holdings. The positive Impact of foreign direct investment on the host country takes place through the transfer of new technologies and know-how, formation of human resources, integration in global markets, increase of competition, and firms’ development and reorganization . Businesses In the host country can become better-run, as they may receive management, accounting or legal advice. The can also improve the productive process as they are able to incorporate the latest techonology to the productive process, new facilities or equipment. Another advantage of foreign direct investment lies in its long-run scope, as it takes longer to set-up, in contrast to short-tem lenders and currency traders . In fact, Žilinske states that FDI has an advantage over other investments such as portfolio or loans as it has proved to be much more resilient times of economic crisis . These Impact of foreign direct investment is supported by neo-liberalism. However, some also point out the negative Impact of foreign direct investment. Keynesians argue that the fact that foreign direct investment has a positive impact on one country’s economy does not mean that it will have a positive impact on another. It all depends on the pevailing circumstances of the host country , such as market failure and imperfect information. Žilinske emphasizes the importance of strong economic rationale must laying behind the incentives to attract the FDI, as countries trying to attract investment by subsidies and tax breaks can actually end up reducing government revenues, which could ultimately be used to invest in education and infrastructure, which create economic growth. http://www.investopedia.com/terms/f/fdi.asp http://en.wikipedia.org/wiki/Foreign_direct_investment http://www.ktu.lt/lt/mokslas/zurnalai/ekovad/15/1822-6515-2010-332.pdf http://ideas.repec.org/p/por/fepwps/390.html http://useconomy.about.com/od/tradeterms/g/Foreign-Direct-Investment-FDI-Definition.htm http://www.ktu.lt/lt/mokslas/zurnalai/ekovad/15/1822-6515-2010-332.pdf
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FDI Strategy, Foreign Direct Investment Strategy, Nation Brand, Impact of Foreign Direct Investment, City Branding,
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