Question

Which of the following is not an argument in favour of privatisation?
1 to improve financial discipline
2 loss of social welfare
3facilitate modernization
4increase in flow of fdi

Answer 1

Developing countries, emerging economies and coun-

tries in transition have come increasingly to see FDI as a

source of economic development and modernisation, income

growth and employment. Countries have liberalised their FDI

regimes and pursued other policies to attract investment.

They have addressed the issue of how best to pursue domes-

tic policies to maximise the benefits of foreign presence in the

domestic economy. The study Foreign Direct Investment for

Development attempts primarily to shed light on the second

issue, by focusing on the overall effect of FDI on macro-

economic growth and other welfare-enhancing processes, and

on the channels through which these benefits take effect.

The overall benefits of FDI for developing country

economies are well documented. Given the appropriate

host-country policies and a basic level of development, a

preponderance of studies shows that FDI triggers technol-

ogy spillovers, assists human capital formation, contributes

to international trade integration, helps create a more com-

petitive business environment and enhances enterprise

development. All of these contribute to higher economic

growth, which is the most potent tool for alleviating poverty

in developing countries. Moreover, beyond the strictly eco-

nomic benefits, FDI may help improve environmental and

social conditions in the host country by, for example, trans-

ferring “cleaner” technologies and leading to more socially

responsible corporate policies.

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