Question

1. Briefly explain and discuss the potential advantages and disadvantages of foreign direct investment (FDI) for developing countries.

Answer 1

Foreign direct investment is when an individual or business is the owner of 10% or more of a foreign company.FDI is important for developing countries because they need multinational  fund to expand their international business.

FDI benefits the economy of the world and also the investors.Investors always want the best return from their investment with less risk.Thus well run businesses have a competititive advantage and so goods and services of such businesses go to the market faster with FDI. FDI diversifies their business outside the country. Diversification increases return without risk.FDI rewards the best companies and the influence of local government gets reduced.The standard of living of the receipient country gets enhanced.

FDI lowers the comparative advantage of the nation if FDI takes control of the strategic sectors of the economy.Foreign investors might reduce the value of the business as they might sell the sections of the company which are not making profit to local investors.