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Between 1985 and 1990, the global economy witnessed an unprecedented surge in flows of foreign direct...

Between 1985 and 1990, the global economy witnessed an unprecedented surge in flows of foreign direct investment (FDI). This sudden increase called back into prominence the range of questions that have long surrounded FDI. What causes firms to expand or contract their purchase of foreign assets? How do patterns of investment affect trade and development? What is the impact of FDI on host countries?

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Expert Solution

ANS- FDI means Investment made by one company in another company located into different company. FDI generally takes place when Investor establishes foreign business operation or acquires foreign business assets in foreign company.

The Following factors motivate firm to expand or contract their purchase of foreign assets :

  1. New Geographical area/ Market Seeking: By expanding business abroad companies find new stakeholders for their goods & services
  2. Optimum Utilisation of resources : In different countries, company find cheaper & efficient labour work force, raw materials, suppliers etc
  3. Technological Advancement : Comapnies invest abroad in order to build their Strategic business assets & acquaintance with new & advanced technology

Pattern of Investment affect Trade & development in following manner-

FDI are important catalyst for development in developing counties. with the help of FDI, trades are having positive Impact on countries economic growth depending upon their human capital, infrastucture, domestic investments, trade policies, macro & micro ecoonomy.

The contribution of economic growth in enhanced by positive intraction between their human capital and trade policies & political interventions.

Impact of FDI on host countries-

FDI stimulates domestic investment & facilitates improvement in human capital & institutions in host counties. Local companies in host company gets a platform to learn & adopt new technology, business ideas, business ethics, business synergy etc. On the other hands local companies are exposed to foreign markets & enable themselves to compete with the competitive world by exporting the goods & drive to bring Foreign currency.

jeff jeffy answered 2 years ago
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