Tuesday, October 1, 2019
Effects of Foreign Direct Investment Essay
The possible positive andà negative effects of FDIà inflows Ing. Tomà ¡Ã
¡ Dudà ¡Ã
¡, PhD. Possible positive effects FDI provides capital which is usually missingà in the target country Long term capital is suitable for economicà development Foreign investors are able to finance theirà investments projects better and often cheaper Foreign corporations create new workplaces Possible positive effects FDI bring new technologies that are usuallyà not available in the target country. There is empirical evidence that there are spillover effects as the new technologies usually spread beyond the foreign corporations Foreign corporations provide better access toà foreign markets Ex. Foreign corporations can provide usefulà contacts even for their domestic subcontractors Possible positive effects Foreign corporations bring new know-how andà managerial skills into the target country Again, there is a spill-over effects ââ¬â as people leave the corporations they leave with the knowledge and know-howà they accumulated Foreign corporations can help to change the economicà structure of the target country With a good economic strategy governments can attractà companies from promising and innovative sectors Possible positive effects ââ¬Å"Crowding inâ⬠effect The foreign corporations often bring additionalà investors into the target country (ex. their usual subcontractors) Foreign corporations improve the businessà environment of the target country Ethical business or rules of conduct Possible positive effects Foreign corporations bring new ââ¬Å"cleanâ⬠à technologies that help to improve theà environmental conditions Foreign corporations usually help increase theà level of wages in the target economy Foreign corporations usually have a positiveà effects on the trade balance Possible negative effects Foreign corporations may buy a local companyà in order to shut it down (and gain monopolyà for example) ââ¬Å"Crowding outâ⬠effect We can see this effect if the foreign corporationsà target the domestic market and domesticà corporations are not able to compete with theseà corporations Possible negative effects Foreign corporations may cut workingà positions (privatization deals or M&Aà transactions) Foreign corporations have a tendency to useà their usual suppliers which can lead toà increased imports (no problem if theà production is export driven) Possible negative effects Repatriation of the profits can be stressful on theà balance of payments The high growth of wages in foreign corporationsà can influence a similar growth in the domesticà corporations which are not able to cover this growthà with the growth of productivityà The result is the decreasing competitiveness of domesticà companies Possible negative effects Missing tax revenues If the foreign corporations receive tax holidays orà similar provisions The emergence of a dual economy The economy will contain a developed foreignà sector and an underdeveloped domestic sector Possible negative effects Possible environmental damageà ââ¬Å"Incentive tourismââ¬
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