Question

What is the effect of foreign investment on the national income of the investing country and host country? and Why FDI is better than foreign aid?

Answer 1

Foreign investment generally brings more avenue for host country as it provides more employment creates competitive market in a host country for that particular goods and services that results into the improved quality of goods and services from all the existing market players. In simple terms it helps to create social welfare in host county.

For foreign companies that are investing in other countries get newer unexplored markets for their goods which increases the profitability of that firm as domestic market experiences saturation for that goods and services.

Foreign aid is generally terms of grants are nothing but special form of external commercial borrowing which has to be paid bacj after some point of time whereas FDI stimulises macroeconomic factors of host economy which as discussed earlier increase employment reduces the monopoly to some extent provides better services to host country.

It is win win situation in case of FDI as it has no implicit cost attached to it.