Foreign Direct Investment Essay

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Foreign Direct Investment
Definition: An investment made by a company or entity based in one country, into a company or entity based in another country.
Foreign direct investment has many forms. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans".
Advantages of Foreign Direct Investment:
1- Develop Country:
One of the primary benefits of foreign direct investment is that it helps the developing country. When a large corporation pours millions or billions of dollars into building part of its business in that country, it can significantly stimulate the local economy. This helps other businesses in the surrounding …show more content…

5- Lower Unit Costs
Even though a company must invest a large amount of money to get started in a foreign country, this can have the long-term effect of lowering costs. by take advantage of large tax benefits. The company can also pay less for labour and other goods that may be needed for the production of products. This lowers the overhead for the company and helps it operate more profitably

6- Reduce Risk:
Investor risk is reduced because they can diversify their holdings outside of a specific country, industry or political system. Diversification always increases return without increasing risk.
7- Higher tax:
The standard of living in the recipient country is also improved by higher tax revenue from the company that received the foreign direct investment. However, sometimes countries neutralize that increased revenue by offering tax incentives to attract the FDI in the first place.

Disadvantages of Foreign Direct Investment:
1- Inflation may increase slightly.
2- Domestic firms may suffer if they are relatively uncompetitive.
3- The develop countries will solely Depends on the outsiders for majority of its economy, this put pressure on both company and the hoist country.
4- Many MNCs have been accused of exploiting their workforces. For example, they may force workers to work in unsafe, or simply miserable, conditions; they may employ children, and pay low

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