Please enable JavaScript.
Coggle requires JavaScript to display documents.
Foreign Direct Investment (FDI) (Possible Advantages to Developing…
Foreign Direct Investment (FDI)
Definition
Long-term investment by private multinational corporations (MNCs) in countries overseas
Factors in Developing Countries that Attract MNCS
Rich in natural resources
, e.g: Oil and minerals in Angola & Nigeria
Huge and growing markets
, e.g: China & India
Low costs of labour
- Producers sell their products at lower prices & make higher profits
Less severe of government regulations
to reduce costs of production, e.g: Vietnam
Possible Advantages to Developing Countries Associated with FDI
Fill saving gap
that occur due to increase in savings
Provide
employment, education and training
to domestic workers
Greater access to
research and development, technology, marketing expertise
and
enhance industrialization
Increased employment and earnings
may contribute to
economic growth
Government gain
tax revenue
from the profits of the MNC
Increasing
aggregate demand
(Investment)
Improve the infrastructure
of the country to
attract MNCs
Provide
more choices
and
lower prices
for consumers
Liberalized trade can lead to a
more efficient allocation of world resource
Possible Disadvantages Associated with FDI
Limits the
ability of host country
to acquire
new technologies
MNCs have
too much power
Reduce their private costs
while
creating external costs
due to
ineffective legislation on pollution
therefore increased pollution in host country
MNC allow the
exploitation of local workers
in terms of both
low wage levels
and
poor working conditions
MNC may enter a country to
extract particular resources
and
bring back to their country
MNCs may use
capital-intensive production methods
to make use of
abundant natural resources
therefore not increasing employment
MNCs may
repatriate their profits
back to their country of origin
Practice of
transfer pricing
where MNCs sell goods and services to another division of the same company in a different country to reduce corporate tax
Host country lose out on
potential tax revenue
even though they have provided low tax rates to
attract MNCs
Corporate Social Responsibility (CSR)
Policies that outline the firm's commitment
to support human rights, employee rights, environmental protection, sustainable development and community involvement.
Companies
publish and promote
their CSR policies through annual reports, websites and advertising to publicize it
MNCs want to
keep a positive image of themselves
to gain support of the public since there is fast flow of information through media and internet