06.02 - Potential Benefits and Costs of FDI for Host countries

Question 1

Consumers

Answer 1

BENEFITS:
- access to international quality products and brands
- lower prices due to scale economies and competition
NEGATIVE EFFECTS:
- reduces variety of traditional local brands

Question 2

Suppliers

Answer 2

BENEFITS:
- technology transfer enhancing productivity
- opportunity to become an international supplier
NEGATIVE EFFECTS:
- crowding out by international sourcing

Question 3

Competitors

Answer 3

BENEFITS:
- technology spillovers enable learning
- competition may trigger upgrading and innovation
NEGATIVE EFFECTS:
- crowding out by overwhelming competition

Question 4

Workers

Answer 4

BENEFITS:
- employment opportunities
- typically higher labour standards than local firms
- training and knowledge transfer
NEGATIVE EFFECTS:
- often less labour intensive production (thus fewer work places) than local firms

Question 5

Government

Answer 5

BENEFITS: 
- tax revenues
- economic growth
NEGATIVE EFFECTS: 
- costs of subsidies and other incentives

Question 6

Natural environment

Answer 6

BENEFITS:
- MNEs often have higher environmental standards than local firms
NEGATIVE EFFECTS:
- MNEs may locate highly polluting activities in places with less stringent regulation