Foreign Direct Investment Assignment Example | Topics and Well Written Essays - 2750 words

Foreign Direct Investment - Assignment simulationIn other words, FDI inflows might supplement the limited financial resources which retard the growth of an parsimoniousness. Moreover, FDI inflows could assist in technology transfers that could prove to be more efficient in foothold of overlap and thence, be of lavishly assistance to the developing economies especially in field of study of LDCs (Assadourian, 2005). On the other hand, too much dependence upon FDIs for economic development, from a particular host nation might fold detrimental in case that the latter exploits the former on such grounds. In addition, the recipient country withal suffers if FDI inflows invigorate production processes which ultimately injure the environment. Moreover, in case the benefits of FDI inflows trickle down to any particular segment of the preservation only, possibilities of social uprisings grow intense among those who are not directly benefitted out of the same (OECD, 2002). FDI outflo ws could be turn to be advantageous for the source economy through boosting its current account position in end points of profit returns from sales made in the host economy. Moreover, prospects of rise in employment are also multiplied in the source economy when the raw materials produced in the host nation are brought in for manufacture of final goods. Lastly, technology and skill from the host nation are also passed into the home country, thus benefitting the latter. One of the highest costs incurred in FDI outflows is that of capital account deficits owing to a massive outflow in the initial phase. Secondly, the home country suffers from a current account deficit if the purpose of FDI outflow is to second low-cost raw materials (Vaidya, 2006). Determinants of FDI The primary factors which determine the flow of... The primary factors which determine the flow of FDI within an economy are At the face of competition, the foreign investors often consider foreign investment to be b eneficial for their long run growths against their rivals. Such a measure could help them in securing their foothold in a non-domestic market. Such measures are often adopted in order to maintain a long term relationship which might prove to be profitable in the future, either in terms of a sustained flow of cost efficient inputs or technology. Moreover, a long term commitment could be advantageous at times of bargain as well. In addition, involvement in new product in a foreign market is associated with economies of moving in first (Moosa, 2002). Answer to Question 2The association between openness to trade and economic growth of an economy is a highly questionable topic. There exist theories as well as empirical evidences supporting and opposing the facts, so that the pertinence of any one of them cannot be asserted in the true sense of the term. One robust theory which could be raised in support of the hypothesis is that lower the degree of trade restrictions in an economy, hi gh will be the inflow of export revenues in the nation which in turn boosts the national income of the economy. Moreover, abolishment of restrictions over trade such as import tariffs or export quotas could help in extracting the benefits of comparative degree advantage which is beneficial in lowering the cost of production.