What are the effects of FDI inflows in case of Bangladesh
Posted by Ripon Abu Hasnat on Wednesday, September 3, 2014 | 0 comments
There are some positive and negative
effects of Foreign Direct Investments. These are:-
Possible positive effects:
1. Foreign direct
investment (FDI) provides capital which is usually missing in the target
country
2. Long term
capital is suitable for economic development
3. Foreign
investors are able to finance their investments projects better and often
cheaper
4. Foreign
corporations create new workplaces
5. FDI bring new
technologies that are usually not available in the target country. There is
empirical evidence that there are spill-over effects as the new technologies
usually spread beyond the foreign corporations
6. Foreign
corporations provide better access to foreign markets Ex. Foreign corporations
can provide useful contacts even for their domestic subcontractors
7. Foreign
corporations bring new know-how and managerial skills into the target country
Again, there is a spill-over effects – as people leave the corporations they
leave with the knowledge and know-how they accumulated
8. Foreign
corporations can help to change the economic structure of the target country
9. With a good
economic strategy governments can attract companies from promising and
innovative sectors
Possible Negative effects:
1. Foreign
corporations may buy a local company in order to shut it down (and gain
monopoly for example)
2. “Crowding out”
effect: We can see this effect if the foreign corporations target the domestic
market and domestic corporations are not able to compete with these corporations
3. Foreign
corporations may cut working positions (privatization deals or M&A
transactions)
4. Foreign
corporations have a tendency to use their usual suppliers which can lead to
increased imports (no problem if the production is export driven)
5. Repatriation of
the profits can be stressful on the balance of payments
6. The
high growth of wages in foreign corporations can influence a similar growth in
the domestic corporations which are not able to cover this growth with the
growth of productivity- The result is the decreasing competitiveness of
domestic companies.
7. Missing
tax revenues- If the foreign corporations receive tax holidays or similar
provisions
8. The
emergence of a dual economy-The economy will contain a developed foreign sector
and an underdeveloped domestic sector.
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