In: Economics
This week we explored the various theories of FDI and discussed how political ideology has shaped these attitudes. With that said, please identify a cost and a benefit of FDI from the perspective of a home country. When answering this question, select any home country of your choice excluding the United States.
Foreign direct investment refers to investment where in a firm in one country directly controls or owns a subsidiary in another country. It can be said to be a direct Investment into a production/business in a nation made by individuals/organizations of another nation. It influences the investment pattern of the economy of a nation and targets to increase the overall efficiency. It is better than other mode because it is the easiest mode of entry and modifications can be made at any point of time.
The political risk refers to risk associated with a nation's politicians and at times can be beneficial for other nations on their decisions on investments. Corruption is considered to be a subject to social construction and reconstruction for an organisation. The less corrupted country is positively associated with foreign direct investment and GDP growth. The political environment of India make globalisation channelized as per political leaders. Thus when desperate politicians who does not support nationalizations it could be beneficial for global investors to invest in some strategic industries and creates an opportunity for them. However the complex tax systems and lack of financial resources are challenges that are usually negatively correlated with business activity. The Prevention of Corruption Act, 1988 is a Parliament of India's act that targets to combat corruption in government agencies as well as public sector businesses in the country. Effective management of political risk and awareness on laws of anti-corruption in India can help the organization to protect themselves against these risks.