Foreign Direct Investment

1788 WordsMar 19, 20118 Pages
Chapter 4 FOREIGN DIRECT INVESTMENT FDI is the outcome of Mutual interest of MNC’s and host countries. The FDI refers to the investment of MNC'’ in host countries in the form of creating productive facilities and having ownership and control. On the other hand if MNC or a foreign organization or a foreign individual buys bonds issued by host country it is not FDI, as it has no attached management or controlling interest. Such investments are called Portfolio Investments. In developing countries FDI is seen as a useful source of funds. LDC’s look upon FDI as a source to bridge their demand supply gap of funds. It represents an important source of non-debt inflow that often brings along with it new technology and management…show more content…
A developing country is usually characterized by low savings, low capital, stock and low investment. Such a country looks for external source to bridge its resources gap. Hence, FDI is encouraged. The LDC’s also often receive technology, work culture and advanced managerial techniques along with FDI. In view of the immense benefits of FDI the LDC’s produce suitable policy environment to attract them. Benefits of FDI to Host Country 1) FDI helps to bridge the gap between supply of the Domestic Savings and the Demand for the investible resources in host countries. 2) FDI not only provides the finance but also provides managerial, administrative and technical, HRD expertise, new technology, research, development and innovations in products and techniques of production, which are in short supply in LDC’s. 3) FDI encourages local enterprises to invest more itself in ancillary industries or in collaboration with foreign enterprises. 4) FDI adds more value added to output in host country than the return on capital from foreign investments. Thus in this sense social returns are greater than the private returns on foreign investment. 5) FDI also brings revenue to the government of the host country in terms of taxes. FDI in India (India’s Experiences) India needs FDI to accelerate pace of its development. India is
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