Question

Discuss how national governments influence (increase or decrease) the flow of FDI (foreign direct investment) in their country.

Answer 1

Ans. National governments play a major role in increasing or decreasing the FDI in their country. The main aim to increase foreign direct investment in a country is to create employment and to create a better standard of living for the people, by helping them improve their knowledge and their technial know how. Nevertheless, the governments still try to control the FDI on various basis:

How the national Governments encourage FDI

1. Improving the infrastructure:

The government in order to increase the foreign direct investemnt also trys to improve the local infrastructutal in order for foriegn companies to invest in the country. This step taken by the government to improve the nrastructure ultimately impacts the economic condition of the home country.

2.Financial Motivation : The government gives a lot of incentives and loans to invest in their host country.

3. By reducing beauraucracy : The national government can make the investemnt procedure more simple than complex by appointing officials to help out in the paper work and cutting down on red tapism and beauraucracy.

4. Improving skilled labour: The national government in order to provide skilled labour for the investmnet companies, they invest on the education of their nationals. educated workforce is the biggest investment for a country.

How the government discourage or decrease the FDI

The government put quite a few restrictions in order to protect the vast natural resources, the socio-economic benefit of its people and also mainly to protect the local industries in their home country.

1. Ownership restrictions: The national governments can keep ownership restrictions if they want to keep the control and ownership of certain businessess in the name and hands of their nationals. some countries even go to the extent that the ownership is only given to those individuals if the person is born in the home country only.

2. Sanctions: The national government of countries provide sanctions and tax rebates to their local companies so that they can invest in the country rather than having a foreign couontry investing .