Higher Growth in National Income: Developing countries
get much needed capital through FDI to achieve higher rate of growth in
in Addressing BOP Crisis: FDI provides inflow of foreign
exchange resources into a country. This
helps the country to solve
adverse balance of payment position.
Economic Development: FDI brings technology, management
and marketing skills along with it. These are crucial for achieving faster
economic development of developing countries.
Employment Opportunities: FDI generates a lot of employment
opportunities in developing countries, especially in high skill areas.
Competition in Host Countries: Entry of FDI into
developing country promotes healthy competition therein. This
leads to enterprise
in developing countries operating efficiently and effectively in the
market. Consumers get a variety of products of good quality at market
determined price which usually benefits the customers.
Natural Resources: The FDI Companies deplete natural
resources like water, forest, mines etc. As a result such resources are not
available for the usage of common man in the host country.
Outflow of capital: Foreign companies are said to take away
huge funds in the form of dividend, royalty fees etc. This causes a huge
outflow of capital from the host country.
Transferring Technology: Some foreign enterprises do not
transfer the technology to developing countries. They mostly transfer second
hand technology to thehostcountry. Theykeepthefundamental aspects of technology
with the parent company. In such case, the host country may not get the
advantage of technology transfer and consequent economic development.
Cheap Labour: Foreign enterprises employ cheap labour
force at a lower pay in developing countries. They do not employ local people for higher posts
in the management. Further they do not extend the privileges they usually give to
the employees in their home country to the employees of the host country. Thus
they are stated to exploit the labour in developing countries.
Monopolistic Environment: Multi National Companies (MNCs)
which enter the host country through FDI route create monopolistic conditions
in the host countries through their market power. They may not create
competitive environment in the host country. Contrarily they may affect the
competition altogether and establish supremacy.