- May 23, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Section: External sector
Benefits of FDI:
Economic development stimulation:
- FDI can stimulate a target country’s economic development and create a more conducive environment for companies, the investor, and stimulate the local community and economy.
Easy international trade:
- Countries usually have their own import tariffs, which makes trading rather difficult. A lot of economic sectors usually require presence in the international markets to ensure sales and goals are met. FDI makes all of these international trade aspects a lot easier.
Employment and economic boost:
- FDI creates new jobs and more opportunities as investors build new companies in foreign countries. This can lead to an increase in income and more purchasing power to locals, which in turn leads to an overall boost in targeted economies.
- Of course — taxes. Foreign investors receive tax incentives that are very beneficial regardless of your selected field of business. Everybody loves a tax write-off.
Development of resources:
- The development of human capital resources is a big advantage of FDI. The skill gained by the workforce through training increases the overall education and human capital within a country. Countries with FDI are benefiting by developing their human resources all while maintaining ownership.
- Foreign direct investment allows for resource transfers and the exchanges of knowledge, technologies, and skills.
- Foreign direct investment can reduce the disparity between revenues and costs. With such, countries will be able to make sure that production costs will be the same and can be sold easier.
- The facilities and equipment provided by foreign investors can increase a workforce’s productivity in the target country.
Increase in a country’s income:
- Another big advantage of foreign direct investment is the increase of the target country’s income. With more jobs and higher wages, the national income normally increases which promotes economic growth. Large corporations usually offer higher salary levels than what you would normally find in the target country, which can lead to an increment in income.