Impact of FDI on host and home country in 7 points each .......urgent
Answers
Impact of FDI on Home country
Countries should not allow foreign ownership of companies in strategically important industries.
1... foreign investors could lower the comparative advantage of the nation, according to an IMF report.
2.... foreign investors might strip the business of its value without adding any. 3... foreign investors could sell unprofitable portions of the company to local, less sophisticated investors.
4... foreign can use the company's collateral to get low-cost, local loans. Instead of reinvesting it, they lend the funds back to the parent company.
5... Trade agreements are a powerful way for countries to encourage more FDI. A great example of this is the North Atlantic Free Trade Agreement, the world's largest free trade agreement. It increased FDI between the United States, Canada, and Mexico to $452 billion in 2012. That was just one of NAFTA's advantages.
6... The U.N. Conference on Trade and Development publishes the Global Investment Trends Monitor. It summarizes FDI trends around the world.
7....The Bureau of Economic Analysis reports on the FDI activities of foreign affiliates of U.S. companies. It provides the financial and operating data of these affiliates. It says which U.S. companies were acquired or created by foreign ones. It also describes how much U.S. companies have invested overseas.
Impact of FDI in host country
1..The impact of FDI on host country international trade will differ, depending on its motive –
2... Adverse Effects on Employment
Sceptics about FDI note that not all the ‘new jobs’ created by FDI represent net additions
3.... Adverse Effects on Competition
Although in the previous section we outlined how FDI can boost competition, host
governments sometimes worry that the subsidiaries of foreign MNEs may have greater
economic power than local competitors. If it is a part of large international organization,
4... Adverse Effects on Balance of Payments
There are two main areas of concern with regard to the adverse effects of FDI on a host
country’s balance of payments. First, set against the initial capital inflow that comes with
FDI must be the subsequent outflow of earnings from the foreign subsidiary to its parent
company. Such outflows show up as a debit on the capital account. Some governments
have responded to such outflows by restricting the amount of earnings that can be
repatriated to a foreign subsidiary’s home country.
5... Privatization as a Major Channel for Attracting FDI
The most important progress in many developing and transition economies are large
amount of inflow of FDI and privatization of the state-owned companies’ across different sectors.
6... Balance of Payments Effects
FDI’s effect on a country’s balance of payment accounts is an important policy issue for
most host governments. There are three potential balance of payments consequences of
FDI. First, when an MNE establishes a foreign subsidiary, the capital account of the host
country benefits from the initial capital inflow. However, this is a one-time only effect.
7....Employment Effects
The effects on employment associated with FDI are both direct and indirect. In countries
where capital is relatively scarce but labour is abundant, the creation of employment
opportunities – either directly or indirectly – has been one of the most prominent impacts
of FDI. The direct effect arises when a foreign MNE employs a number of host country
citizens. Whereas, the indirect effect arises when jobs are created in local suppliers as a
result of the investment