Disadvantages Of FDI

Cohen (2007) describe in their research that FDI is just not only a source of Financing. For the developing country an FDI is not only a source of funding, the country can gain skills that can help the people of the country in a long-term basis. Such skills can be classified into different categories such as technology, organizational & management practices, exposure to different working styles & standards and lastly the access to different markets. Before the transition economies crisis (Russia), the inflow of FDI peaked up to 60% of private capital flows in developing economies according to Carkovic and Levine (2005). However the role of FDI inflow has been quite unclear that whether it has a positive or negative role upon the economy of

Technology contributes more to growth than domestic investments. However this can only be possible if the host country has a minimum threshold of stock and human capital. It is possible that if the technology is too advance and the host country do not have the capability or capacity to absorb that technology than the FDI will not have positive impact upon the growth of the host country. So the host country must have the capability and capacity to absorb technology. Ghosh (2007) did research related to labor and FDI, according to his model countries that have a high skill labor can absorb technology more rapidly than countries with unskilled labor. It takes investors a lot of time to train and make sure that the untrained labor comes up to their required

However their results were heterogeneous across countries. Moura and Forte (2010) believe that with the inflow of FDI competition also increases within the host country. With the increase of competition, the economy starts to grow and end customers then have more options to select from. Balamurali and Bogahawatte (2004) focused their research on FDI’s impact on Sri Lanka’s economy. In most years FDI did have a positive relationship with economic growth, however trade policy formulated by the country plays an important role for the flow of FDI. If a country is not open towards economic trade than the inflow of FDI will be low.
There are certain present conditions that lead to a strong positive impact of FDI upon economic growth. Two studies can be referred in this instance; Alfaro et al. (2003) in their research describe that for FDI to have major impact upon the economic growth of the host country, if the financial markets in the host country well developed. Countries that have well developed financial markets gain more from inflow of FDI than countries with weak financial