Briefly explain the factors that affect decision of an investor to engage in direct foreign investment

Expert Solution

Economic factors that effect FDI are as follows :

(1) Wage rate –Countries where wage rates are low, definitely attracts foreign investors, as wage rate means output cost, if output cost is low, then indirectly profit is high.

(2) Labour skills – Countries where labours are well skilled, attracts huge amount of foreign investment, as skilled labour also reduces the output cost, and production also increases.

(3) Tax rate –Countries where there are tax concessions, also attracts foreign investment, as it does not snatch out the firms profit share.

(4) Well road connectivity and infrastructure - with proper road connectivity and transportation facility , the firms get easy access to the markets, and reducing their transportation cost.

(5) Special economic zones - These are areas, where industries of a particular type is set, by getting subsidy from the governments so as all the essential elements of that industry is available at the particular area it attracts lots of foreign investment.

Rahul Sunny answered 2 years ago

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