Question

State the objectives of Foreign Direct Investment.

Answer 1

Objectives of FDI:
FDI has the following objectives.

1. Sales Expansion
2. Acquisition of resources
3. Diversification
4. Minimization of competitive risk.

• FDI may help to increase the investment level and thereby the income and employment in the host country.
• Direct foreign investment may facilitate the transfer of technology to the recipient country.
• FDI may also bring revenue to the government of the host country when it taxes profits of foreign firms or gets royalties from concession agreements.
• A part of the profit from a direct foreign investment may be plowed back into the expansion, modernization, or development of related industries.
• It may kindle a managerial revolution in the recipient country through professional management and sophisticated management techniques.
• Foreign capital may enable the country to increase its exports and reduce import requirements. And thereby ease BoP disequilibrium.
• Foreign investment may also help increase competition and break domestic monopolies.
• If FDI adds more value to output in the recipient country than the return on capital from foreign investment, then the social returns are greater than the private returns on foreign investment.
• By bringing capital and foreign exchange FDI may help in filling the savings gap and the foreign exchange gap in order to achieve the goal of national economic development.
• Foreign investments may stimulate domestic enterprises to invest in ancillary industries in collaboration with foreign enterprises.