Effects of Foreign Direct Investment Essay

The possible positive and forbid effectuate of FDIinflowsIng. Tom Dud, PhD. practicable positive effectsFDI provides capital which is usually missingin the target countryLong term capital is suit equal for economicdevelopment unknown investors are able to finance theirinvestments projects better and often cheaper unusual corporations create new workplacesPossible positive effectsFDI recreate new technologies that are usuallynot visible(prenominal) in the target country.There is empirical evidence that there are spillover effects as the new technologies usually spread beyond the foreign corporationsForeign corporations provide better access toforeign marketsEx. Foreign corporations asshole provide usefulcontacts even for their internal subcontractorsPossible positive effectsForeign corporations bring new know-how andmanagerial skills into the target countryAgain, there is a spill-over effects as people leave the corporations they leave with the knowledge and know-howthey accumul atedForeign corporations can protagonist to change the economicstructure of the target countryWith a good economic strategy governments can attractcompanies from promising and innovative sectorsPossible positive effectsCrowding in effectThe foreign corporations often bring additionalinvestors into the target country (ex. their usualsubcontractors)Foreign corporations improve the commercial enterpriseenvironment of the target countryEthical business or rules of conductPossible positive effectsForeign corporations bring new cleantechnologies that help to improve theenvironmental conditionsForeign corporations usually help increase thelevel of wages in the target economyForeign corporations usually have a positiveeffects on the trade balancePossible negative effectsForeign corporations may buy a local companyin order to shut it down (and gain monopolyfor example)Crowding out effectWe can see this effect if the foreign corporationstarget the domestic market and domesticcorporations ar e not able to compete with thesecorporationsPossible negative effectsForeign corporations may cut workingpositions (privatization deals or M&Atransactions)Foreign corporations have a tendency to usetheir usual suppliers which can lead toincreased imports (no problem if theproduction is export driven)Possible negative effectsRepatriation of the profit can be stressful on thebalance of paymentsThe high ripening of wages in foreign corporationscan influence a similar growth in the domesticcorporations which are not able to cover this growthwith the growth of productivityThe result is the decreasing competitiveness of domesticcompaniesPossible negative effectsMissing tax revenuesIf the foreign corporations receive tax holidays orsimilar provisionsThe emergence of a dual economyThe economy allow for contain a developed foreignsector and an underdeveloped domestic sectorPossible negative effectsPossible environmental damage motivator tourism