Question

Role of foreign direct investment in economic growth

Answer 1

Answer:

Foreign Direct Investment (FDI) is often seen as important catalysts for economic growth in the developing countries like India. FDI affects the economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfer in the host countries.

Explanation:

Foreign Direct Investment helps in accelerating the rate of economic growth as follows:

i. FDI provides Capital:

Foreign Direct Investment is expected to bring needed capital to developing countries. The developing countries need higher investment to achieve increased targets of growth in national income.

Since they cannot normally have adequate savings, there is a need to supplement savings of these countries from foreign savings. This can be done either through external borrowings or through permitting and encouraging Foreign Direct Investment. Foreign Direct Investment is an effective source of this additional capital and comes with its own risks.

ii. FDI removes Balance of Payments Constraint:

FDI provides ‘ inflow of foreign exchange resource and removes the constraints on balance of payment. It can be seen that a large number of developing countries suffer from balance of payments deficits for their demand for foreign exchange which is normally far in excess of their ability to earn. FDI inflows by providing foreign exchange resources remove the constraint of developing countries seeking higher growth rates.

FDI has a distinct advantage over the external borrowings considered from the balance of payments point of view. Loan creates fixed liability. The governments or corporations have to repay. The resulting international debt of the government and the corporation parts a fixed liability on balance of payments.

iii. FDI brings Technology, Management and Marketing Skills:

iv. FDI promotes Exports of Host Developing Country:

v. FDI provides Increased Employment:

vi. FDI results in Higher Wages:

vii. FDI generates Competitive Environment in Host Country:

HOPE ITS HELPFUL!!!!

PLZ MARK ME AS BRAINLIEST!!!!