Foreign Direct Investment Essay (Full essay + Bonus)
Foreign direct investment (FDI) is typically depicted as a venture that encompasses the transmission of an enormous amount of capital in the sense of finances, technology and administrative practices among others (Sasse, 2011). FDI is regarded by numerous transnational establishments, economists, and politicians as an element that nurtures the host nations’ economic development. This venture is undertaken by a company or person in overseas firms, connecting to an integral equity stake in or efficient management regulation. Given that capital creation and technological advancement are the forces behind economic development, FDI is anticipated to have an interest in economic growth in the host nation. For example, Sasse (2011) examination of the 2002 OECD accounts led to the observation that nations with weak economies regard FDI as the mainspring of growth and modernizing economically. As such, regimes, especially in the developing countries, give exceptional consideration to foreign capital. In fact, the developing countries have developed agencies that draw foreign investments utilizing public funds indicating that the regimes are ready to incur the expenses of attracting such ventures.
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Regardless of the increased study on the actual effects of FDI on the host countries, various gaps are still unfilled. As a matter of fact, despite numerous investigations having ascertained that FDI yields positive influences, several scholars accentuates on the lingering absence of consensus on the extents of the effects. In this manner, it is significant to identify whether FDI has positive of detrimental effects on the implications for the host country.
In the first place, the FDI transmission of technology and savvy to host nations has resulted in both positive and adverse effects on the country. Tang, Selvanathan & Selvanathan (2012) contends that FDI is a way of advancing a country economically through bringing in improved technology particularly by multinationals. Multinational institutions are considered to have the most sophisticated technology. In fact, Tang, Selvanathan & Selvanathan (2012) pinpoints that multinationals are the greatest spenders on research and development. Further, Tang, Selvanathan & Selvanathan (2012) argues that multinationals are the primary source of technology transmission given their dispersion in different places in the world. The economic development extents can be elucidated by the level of technology utilized. In this way, Jensen (2012) identifies that economic growth in developing nations is reliant on the execution of technology transferred by the multinational institutions. The presence of fresh technology brought in by the multinationals results in reduced expenses in research and development (R&D). Also, Jensen (2012) claims that transmission of technology leads to benefits that could not be attained via monetary venturing or buying of the products and services.
Furthermore, FDI is a means of up surging economic development as the transmission of technology and savvy by multinationals develops the productivity of native companies and subsequently the nation’s GDP. The transmission of technology is made to the host country’s suppliers of multinationals establishments voluntarily to upgrade their goods and services they deliver (Jensen, 2012). The fresh technologies are transmitted via training, technical aid and other savvy offered to progress production standards that the multinationals can purchase that. Also, multinationals proffer aid to the resident suppliers in buying raw materials and upgrading of facilities.