Advantages And Disadvantages Of Foreign Direct Investment

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ADVANTAGES OF FOREIGN DIRECT INVESTMENT Foreign Direct Investment takes place for private gain but it has the following potential benefits for less developed countries like India. Raising the level of Investment Foreign investment can fill the gap between desired investment and locally mobilized savings. Local capital markets are often not well developed. Thus, they cannot meet the capital requirements for large investment projects. Besides, access to the hard currency needed to purchase investment goods not available locally can be difficult. FDI solves both these problems because it is a direct source of external capital. It can fill the gap between desired foreign exchange requirements and those derived from net export earnings. Foreign…show more content…
FDI raises productivity in recipient industries and firms is considerable. In addition, FDI-generated technology transfer is particularly likely to occur through linkages with local suppliers. Training, technical advice, and information improve suppliers’ productivity and product quality. The indirect effects of FDI on development which arise from the diffusion of technology and other know-how are sometimes more important than the direct effects of FDI. Therefore, one should consider not only the actual transfer of technology but also the spread of better managerial practices and the contribution of FDI to enhancing competition in host country markets. The overall positive effect of FDI in respect of technology is undeniable, whether these effects occur through actual transfers, licensing or through spillover. Human capital…show more content…
Foreign affiliates often support community development in areas where they operate, including supporting the quality or availability of health and education services. DISADVANTAGES OF FOREIGN DIRECT INVESTMENT Governments in developing countries have to be very careful while deciding the magnitude, pattern and conditions of private foreign investment. Possible adverse implications of foreign investment are the following; Disappearance of Cottage and Small Scale Industries Some of the products produced in cottage and village industries and also under small scale industries had to disappear from the market due to the attack of the products coming from Foreign Direct Investments. Contribution to the Pollution The developed countries have shifted some of their pollution-borne industries to the developing countries. The major victim is automobile industries. Most of these are shifted to developing countries and thus they have escaped from pollution. Exchange

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