Foreign Direct Investment Overview

Study Notes

FDI is a key driver of modern economic growth
It involves capital flow from one country to another to establish new businesses or expand existing ones
FDI promotes economic and social development, especially in developing countries
It improves infrastructure and boosts productivity

FDI is a company or individual's investment in assets or businesses in another country
It differs from portfolio investments, as it's long-term
It involves transferring capital, technology, and expertise
The goal is a sustainable impact on the local economy, including job creation

Technology and Knowledge Transfer: FDI transfers advanced technologies and expertise, improving productivity and product quality, primarily from developed to developing nations.
Job Creation: FDI generates new jobs, reduces unemployment, and increases individual incomes.
Boosting Exports: Foreign companies often export products, strengthening the investing country's global market position.
Economic Diversification: FDI introduces new sectors or strengthens existing ones in host countries.
Government Revenue: Taxes and customs duties paid by foreign companies contribute to government income, enabling infrastructure and public services investment.

Impact on Local Businesses: Competition from foreign companies can harm domestic businesses.
Dependence on Foreign Investment: Excessive reliance can create economic instability if investment is withdrawn.
Environmental Concerns: Insufficient regulations can lead to environmental damage by foreign companies.

Governments play a vital role in attracting FDI
This includes measures like reducing bureaucratic barriers, offering investment incentives (like tax exemptions), ensuring economic stability, and developing necessary infrastructure.