What is the impact of foreign collaboration on the economy of a country?
Answers
Lack of capital is a serious handicap in the way of economic development of underdeveloped countries. The internal resources are not sufficient, so they have to rely on foreign capital in the initial stages of their development. The pace of economic development primarily depends upon the rate of capital formation. But in the underdeveloped countries the per capita real income being very low, the rate of saving investment is very low.
Therefore, these countries are obliged to depend upon external sources of capital for initiating them process of economic development.
External capital cards in the form of (i) direct business investment commonly called, private foreign capital and (ii) international loans and grants more commonly known as foreign aid or external assistance.
In the earlier years more direct business investment was the major form of foreign capital. The private industries and multinational corporations made direct investment in various fields of economic activities—agriculture, industries, plantation, mining, etc. in the underdeveloped countries.
However, the flow of direct business investment or foreign capital has declined in the recent years and therefore, now the major form of foreign capital comes by way of international loans and grants. At one time there was great opposition to the use of foreign capital in India. It was said there was the danger of domination and economic exploitation.