Is Foreign Direct Investment always Beneficial to Developing Countries?

Supporters of Transnational Corporations (TNC) say that their operation in “third world” country, also known as a “developing country”, benefits both the home country (where the TNC is based) and the host country (where they operate). TNCs construct facilities, make infrastructure improvements, and employ local people, all activities that should improve the economy of a host nation. Many host nations hope that there will be a multiplier effect from the direct investment by a transnational corporation, known as foreign direct investment, or FDI. That multiplier is expected to ripple across all other sectors of their economy – benefitting everyone.

Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact.

FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)

Robert E. Lipsey and Fredrik Sjoholm, (2004) “The Impact of Inward FDI on Host Countries: Why Such Different Answers?” pp. 23-43 [Online] Available at:

Using examples and case studies discuss and evaluate the impacts of foreign direct investment on host country economies.

Foreign direct investment (FDI) can be defined as a process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distributions and other activities of a firm in another country (the host country). FDI also have another definition like ‘an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise’- International Monetary Fund’s Balance of Payment Manual and ‘ an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign

It is real that the globalization rapidly expand through borders and industries, and it has happened because of forgin dircet investment. Foregin direct investment has advan and disadvantages. Foregin direct investment considered as one of the most important major in the business and economicenvironment and it is connected with business enterprise and benefits. This is very helpful because it helps to achieve your business goal in a short amount of time. Around the world, many countries open their borders to foreign investment. The one that makes the investment can be business corporation or individual, and group of companies. FDI leads to increase in job creation and employment.

Many scholars argue inward FDI have positive economic impacts on the host country (Buckley et al., 2007; Globerman, 1979; Lipsey and Sjöholm, 2004; Nguyen and Nguyen, 2007; Zhu and Tan, 2000). According to them, there is a causal relationship between FDI and economic growth, where FDI stimulates economic growth. Nguyen and Nguyen (2007) state FDI promotes economic growth and is also a tool to attract FDI. The literature by Anwar and Sun (2011) shows FDI and domestic capital have a significant positive impact on economic growth. Thus, FDI has a positive impact on the economic growth of the host country.

For example, a big corporation may choose to develop manufacturing business in a poorer country that has a comparative advantage in labor. Investors will benefit by utilizing the labor abundant workforce to meet the demands of competition, and the domestic country will experience dynamic growth from new technology, jobs, and human capital. Thus, global markets expand from FDI which is an effective source of economic development, especially in developing nations.

FDI in a developing economy means the development of the entire national economy on a grand scale, benefiting several other support industries, development of the country 's infrastructure, raising standards of living and increasing per capita income. World-leading manufacturers on

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

Based on OECD Factbook 2013: Economic, Environmental and Social Statistics, Foreign direct investment defined as cross-border investment by other investors from the economy that had the objective to gain long term interest or benefit from other countries that need capital for development. FDI have divided into 3 categorty such as Horizontal FDI, plaform FDI and vertical FDI. Kimberly state that Foreign direct investment is global economic growth which are apply in all countries such as developing and emerging market countries. The main purpose of FDI that the investor from other countries invests the surplus capital to other countries to gain benefit. At same time, the developing countries will gain more advanatge on

Foreign Direct Investment is investment involving a long-term relationship and lasting interest in and control by a resident entity in one economy in an enterprise resident in another economy. In FDI, the investor exerts significant influence on the management of the enterprise resident in the other economy.

Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. More specifically, foreign direct investment is a cross-border corporate governance mechanism through which a company obtains productive assets in another country .Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.

Foreign direct investment was neglected in the developmental process of Indian economy before 1991.the 1991 industrial policy has paved out a way for the foreign player, India is a democratic polity and is a country with the political stability and a growing pool of consumers and educated manpower which is a favorable aspect for FDI in India.