Question

The Foreign Direct Investment (FDI) has important role in economic development and financial flows in a globalized world. Discuss the concept of Foreign Direct Investment.

Answer 1

Answer

Foreign direct investment is when an investor living in one country invests in a business based in another country. Under FDI, the foreign investor (individual or business) owns 10 per cent of the company where the investment is being made.

Foreign direct investment is significant for developing economies and emerging markets where companies need funding and expertise to expand their international sales. Private investment in infrastructure, energy, and water is a critical driver of the economy as helps in increasing jobs and wages.

Foreign direct investment benefits the global economy, as well as investors and recipients. Capital goes to the businesses with the best growth prospects, anywhere in the world. Investors seek the best return with the least risk. This profit motive is color-blind and doesn't care about religion or politics.

Some other benefits of foreign direct investment are:

1. It helps in diversifying investors portfolio
2. It provides financing to countries
3. It brings in technological knowhow and managerial expertise
4. It creates more jobs and opportunities
5. It also helps in improving infrastructure in the countries
6. It helps in raising living standards in economies
7. It helps create competitive global capital allocation
8. It facilitates economic growth or repair.