Explain Four major potential advantages of foreign direct investment.pdf

Explain Four major potential advantages of foreign direct investment for a developing country?
Provide specific example of a developing country to depict at least two advantages
Solution
The main advantages of foreign direct investment can be summarised as:
- Proves as a major source for external financing which is essential for most developing nations.
This not only helps the Entrepreneurs for indulging into new business ventures, but also gives an
overall boost to the economy of the country.
- There is a huge scope of job creation through ventures induced by foreign direct investment
(FDI) and thus it creates huge employment opportunities which in turn leads to higher wages for
labor.
- A Widespread resource transfer takes place in terms of knowledge and skills sharing between
developed countries ,which encourages cross cultural interactions and hence builds relationships
which proves beneficial for developing economies in the long run.
- FDI also helps in expanding the national boundaries and creates a widespread market for the
products. Thus it helps the producers in develping nations to gain from economies of scale.
Example: India which is a developing nation has benefitted from FDI as:
1. It has led to increase in remuneration for Indian farmers
FDI has contributed a lot to improve the miserable condition of Indian farmers who indulge into
committing suicides due to unpredictable monsooons. Farmers get 10-30 % higher remuneration
because of FDI.
2.Increase in employment opportunities
FDI has created 3 to 4 million new jobs in India. It is further expected to increase 4 to 6 million
jobs in logistics, labor industries etc..

1. Explain Four major potential advantages of foreign direct investment for a developing country?
Provide specific example of a developing country to depict at least two advantages

Solution

The main advantages of foreign direct investment can be summarised as:
- Proves as a major source for external financing which is essential for most developing nations.
This not only helps the Entrepreneurs for indulging into new business ventures, but also gives an
overall boost to the economy of the country.
- There is a huge scope of job creation through ventures induced by foreign direct investment
(FDI) and thus it creates huge employment opportunities which in turn leads to higher wages for
labor.
- A Widespread resource transfer takes place in terms of knowledge and skills sharing between
developed countries ,which encourages cross cultural interactions and hence builds relationships
which proves beneficial for developing economies in the long run.
- FDI also helps in expanding the national boundaries and creates a widespread market for the
products. Thus it helps the producers in develping nations to gain from economies of scale.
Example: India which is a developing nation has benefitted from FDI as:
1. It has led to increase in remuneration for Indian farmers
FDI has contributed a lot to improve the miserable condition of Indian farmers who indulge into
committing suicides due to unpredictable monsooons. Farmers get 10-30 % higher remuneration
because of FDI.
2.Increase in employment opportunities
FDI has created 3 to 4 million new jobs in India. It is further expected to increase 4 to 6 million
jobs in logistics, labor industries etc.