Costs and Benefits of Foreign Direct Investment

Introduction
Over the years, foreign direct investment (FDI) has become a popular way for countries to move capital flows from one country to the other. Basically, foreign direct investment simply refers to an instant when a business entity for a particular country invests in an income generating asset in another country with a hope of return on the investment. Foreign direct investment has its benefits to the foreign investor, the home country and the host country (Froot 1993, 60). However, it should be noted that the benefits that come about as a result of FDI can only be possible if all the three parties follow the right regulations and the ethical ways of doing business is strictly adhered to. This paper sheds some light on the costs and benefits of FDIs to the investors, the home country and the host country. In addition, it will also review how the country and the firms’ level of development and growth play a role in determining the costs and benefits accrued from the FDIs (Weigel, Wagal & Gregory 1997, 56).
Benefits and costs for host country
One of the core benefits of global foreign direct investment is that it creates an opportunity for money to freely flow to any business around the world that shows any signs of potential growth in the future. This is in light of the fact that when investors choose to invest their money, the main logic behind this is that they expect some form of return from the investment. Additionally, the home country’s capital account will benefit from the inward flow from the returns on the investment.
There are no standard criteria on who deserves the investment and who doesn’t. This ensures that all the businesses get equal competitive advantage and no one business is favored over the others. Su...

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...hat the workers in the company and fully capable of taking advantage of the investment towards attaining the companies goals and objectives and hence a high return on investment. For the underdeveloped company however, there will be even more costs that come with FDI as the investors will be forced to hire new skilled and competent employees or to train the employees in order to improve their level of competence.
In conclusion, it is clear that there is a tradeoff between the benefits and costs related to foreign direct investment. It is therefore means that it would be up to the country’s government to decide which foreign direct investments will fully benefit the country’s economy and which ones would not. Although it may take a while for foreign direct investment to be fully set up in a country, it will in the long run leave a permanent imprint (Moran 2011, 45)