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Benefits Of FDI

FDI is the abbreviated form of Foreign direct investment and refers to the long term involvementof one country with another country. This usually involves participation in joint-venture,

management, transfer of expertise and technology etc. Foreign Direct Investment is a part of

most economies of the world today and plays a key role in the development of a countryseconomy. FDI is now a fundamental part of the global financial system. There are variousnational policies and plans designed for the having an effective government control on FDI.

There are many benefits of FDI both for the investors and the country where investment is beingdone. Some of these advantages include:

1. Helps in economic growth.The inflow of foreign direct investment helps in the economic growth of a country.

2. Aids to improve trade.Foreign Direct Investments opens up a wide spectrum of opportunities in the trading of goods

and services. This is true both for export and import production. The increased amount of FDIinflow leads to the manufacture of superior quality products that can be sold at higher prices andare suitable for being exported to other countries.

3. Brings employment opportunities.FDI inflow results in an increase in the number of employment opportunities for people living inthat country. New industrial units are set up affording employment to people from the top level

to the working groups like factory workers.

4. Aids in transfer of technology and knowledge.The inflow of FDI aids in the transfer of technology and knowledge from one country to another.

For instance, the people of Asian countries like India had vast knowledge related to IT sectorwhich was later used by many other non Asian countries of the world. Thus, FDI helps in the

transfer of knowledge across the world.

5. Benefits to the government.Foreign direct investment helps in increasing the sources of government income. With theincreased flow of FDI the income generated through taxation increases thus, bringing higher

revenues to the government.

6. Improves productivity.FDI plays an important role in enhancing the overall productivity in the host countries.

7. Benefits for the investors.FDI is also quite beneficial for countries that make investments in other countries. Theircompanies get opportunities for exploring new global markets, thereby generating higher

incomes and profits.

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At times it has been observed that certain foreign policies are adopted that are not

appreciated by the workers of the recipient country. Foreign direct investment, at times,

is also disadvantageous for the ones who are making the investment themselves.

Foreign direct investment may entail high travel and communications expenses. The

differences of language and culture that exist between the country of the investor and

the host country could also pose problems in case of foreign direct investment.

Yet another major disadvantage of foreign direct investment is that there is a chance

that a company may lose out on its ownership to an overseas company. This has often

caused many companies to approach foreign direct investment with a certain amount of

caution.

At times it has been observed that there is considerable instability in a particular

geographical region. This causes a lot of inconvenience to the investor.

The size of the market, as well as, the condition of the host country could be important

factors in the case of the foreign direct investment. In case the host country is not well

connected with their more advanced neighbors, it poses a lot of challenge for the

investors.

At times it has been observed that the governments of the host country are facing

problems with foreign direct investment. It has less control over the functioning of the

company that is functioning as the wholly owned subsidiary of an overseas company.

This leads to serious issues. The investor does not have to be completely obedient to

the economic policies of the country where they have invested the money. At times

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there have been adverse effects of foreign direct investment on the balance of

payments of a country. Even in view of the various disadvantages of foreign direct

investment it may be said that foreign direct investment has played an important role in

shaping the economic fortunes of a number of countries around the world.