This paper discusses the major costs and benefits for host countries of foreign direct investment.
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Paper Summary:
This paper explains that foreign direct investment includes equity investment, both wholly foreign-owned and joint venture investment; contractual investment, including contractual joint ventures and oil exploration ventures; and other forms of activities, such as compensation trade, processing and assembling arrangements, and international leasing. The author points out that the purpose of foreign direct investment is to boost the economies of the host nation while providing the foreign nation with a means of investment, which is both lucrative and efficient, allowing countries to share ideas, increasing awareness of foreign markets, and developing valuable business skills. The paper relates problems involved in assessing the impact of inward investment on any individual host nation and states that the main reasons for such problems are strict labor, product, and market rules.
Table of Contents
Introduction
Overview of Foreign Direct Investment
Cost and Benefits Associated with Foreign Direct Investment
The Stability of Foreign Direct Investment
Benefit
Costs
Stimulation of National Economy
Benefits
Costs
Development of Infrastructure and Shared Technology
Benefits
Costs
Crowding In and Crowding Out
Benefits
Costs
Assessing the Impact of Inward Investment on Any Individual Host Nation
Conclusion
From the Paper:
"Although the transfer of technology can be beneficial to the economy of the host country, it can also be detrimental if the businesses in the host country or the culture of the host country are not prepared to deal with these new technologies. The Earth Summit report explains that the technology that foreign firms utilize may be inappropriate for the local needs of the host country. These technologies may also require a great deal of investment capital and negatively affect small businesses because they will not be able to adapt to the changing technological climate. In addition, the external changes that may occur may not be an improvement over the already existing approaches."
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