The Pros And Cons Of Foreign Direct Investment

Foreign Direct Investment ( FDI) is a source that a country obtain from other countries in order to add value for it’s own economy. These sources can be various: Economic or technological. Foreign Investors may establish a new facility or open their branch or establish a partnership with a local company in host country. Nowadays, there is more demand of FDI’s than the world trade and world output. This drastic rise in FDI is due to the help of changing potentials and economic policies that are happening in the developing countries worldwide (Alesina and Dollar, 2000).Investors are more likely to invest their money on more profitable places,it would not be reasonable for companies to invest on less profitable countries. Moreover, the

It is assumed that greater is the size of the market, the more is the inflow of FDI (Pajunen, 2008). The second factor that is required for the investment is the probable growth of the size of the market in which the investment is being looked upon (Head and Ries 2008). The third factor is the level of productivity and the habits and the routines of the employees of the country. The countries that are on the higher side of productivity are the ones that attract more number of foreign investors. So it is essential for the government of the country to focus on improving the productivity of employees and thus the investments. The government should focus on upgrading the education system in the country so that appropriate knowledge is imparted and more skilled workers are produced (Twomey, 2000). The fourth factor that affects the investment decision of the foreign country is the infrastructure of the country in which the investment is done. It is essential to have specific infrastructure that helps to create extra ordinary products that are high in value. It is not necessary to have protection of the intellectual property right (IPR) in the host country if the foreign investment is focusing on local usage. On the contrary if the foreign investors have to export goods or services for the host country then the sixth factor comes into the picture. This last factor says that if the IPR of the host country is not protected then the investor tends to move to the country that has better protection of the IPR (Mello, 1997). Host countries also need to balance between regulating the entry of foreign capital and allowing to competition. Providing the knowledge based and and capable to competition economies with appropriate