Is Foreign Direct Investment always Beneficial to Developing Countries?

565 WordsFeb 18, 20182 Pages
Is FDI always beneficial for developing countries? The impact of foreign direct investment (FDI) on development is a much-debated topic. Over decades, many international financial institutions, such as the World Bank and the IMF, have increasingly promoted FDI. However, on the other hand, many NGOs, labor unions and civil society groups have emphasized the negative effects of FDI. Thus, to answer this question, we should always consider both of the pros and cons of FDI. In principal, foreign direct investment is usually considered the most desirable form of capital inflows for developing countries. It directly adds capital stocks to host countries, and therefore contributes to investment and growth in host countries through various channels The mainstream economic argument in favor of FDI is the existence of positive spillovers. It is argued that domestic companies benefit from the information and knowledge about advanced technology, marketing and management techniques that MNCs bring into the host country. Spillovers may occur through various channels, such as the movement of employees from MNCs to domestic companies and the technical support of MNCs to domestic suppliers. In contrast, positive spillover effects are limited in some sectors because these MNCs are powerful and less regulated, and therefore have little incentive to invest in training and education of their workers. In addition, instead of joint venture with local firms, MNCs usually set limited
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