Advantages and Disadvantages of Foreign Direct Investment (FDI) PDF

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Overview of the advantages and disadvantages of foreign direct investment...

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Advantages and Disadvantages of Foreign Direct Investment (FDI) Advantages Employment in host country ! New jobs will be created and become available in the host country. This will increase consumer spending as more people will be employed in secure job thus will have greater disposable income. More consumer spending means better economic growth which benefits the host country. Furthermore, having more people in employment means higher tax revenue as more people will be capable of making tax contributions. ! For example, in the UK 82,650 jobs were created due to FDI in 2015/2016. ! Multinationals are more able to pay higher wages to staff due to higher productivity and revenue. This ensures that employees have a steady income which reduces inequalities in the host country. The pay gap is usually narrower in developed economies. ! Research ! MNCs have the skills, resources and knowledge to carry out research into new products, services or processes that can benefit the host country. ! Development of skills and knowledge ! People working for MNCs can subsequently develop new skills and qualities thus improving the host country’s labor market. If employees leave the MNC and gain employment in a domestic firm they can apply their skills with their new job. This will subsequently allow these skills to be shared across more companies. ! Government Incentives ! Benefit to the organisation Governments sometimes offer incentives to MNCs to encourage them to invest in the country. This could be lower taxes, grants, guaranteed loans or lower wage rates which are favourable to businesses. ! For example, the UK government offered cheap land to Nissan Motors as an incentive for them to set up a new factory in the UK. !

Disadvantages Destruction of small local businesses ! As MNCs have greater technological capabilities and more available capital, smaller local businesses will likely struggle to compete. In extreme circumstances it may force them out of business. ! Having this market dominance will allow MNCs to raise prices of goods and services due to lack of competition. ! Fear of monopoly power ! If MNCs are seen to be gaining too much power there could be social and political protest....