Reasons in favor and against expansions of Foreign Direct Investment (FDI) by Mu
ID: 1214094 • Letter: R
Question
Reasons in favor and against expansions of Foreign Direct Investment (FDI) by Multinational Corporations (MNCs). a. List and explain the four major reasons that proponents often use to justify the expansion of FDI/MNCs into host countries around the world. b. List and explain the four major reasons that opponents often use to limit expansion of FDI/MNCs into host countries around the world. c. Comparing FDI/MNCs home and host countries, which of these countries benefit the most from outflow of FDI from a home country to a host country? Explain why.
Explanation / Answer
a) in 1950s like other forms of international investment, FDI was seen as a response to differences in the rates of return on capital between countries. Foreign direct investment is also viewed as a way of increasing the efficiency with which the world's scarce resources are used.FDI can also provide a stimulus to competition, innovation, savings and capital formation, and through these effects, to job creation and economic growth. Along with major reforms in domestic policies and practices in the poorest countries, this is precisely what is needed to turn-around an otherwise pessimistic outlook.
b) in home countries there are claims that FDI exports jobs and puts downward pressure on wages.In host countries, there are worries about the medium-term impact on the balance of payments, about potential monopolization of the domestic market, and more generally about the impact of FDI on the government's ability to manage the economy.
c) while developing countries have been the subject of numerous studies focusing on the effects of inward FDI, there is little evidence on how they are affected by outward investment. from the above presented arguments we can see that t is hard to say who benefit the most.
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