4.1.2 International Trade - Foreign direct investment Flashcards
Foreign direct Investment ( FDI)
When a firm in one country directly invests in businesses in another country
Foreign direct investment can be viewed as a form of what
(sam’s interpretation)
As a form of international trade
rather than exporting/importing (far less riskier)
FDI is a way of firms taking…
firms can taking advantages of opportunities in foreign markets
- rather than exporting/importing
examples of FDI - 2
- Merging/acquisitions of a business in a foreign country (e.g buying a business and then selling your product)
- building new factories/setting up production processes in that country
Benefits of FDI to nation & economy
- FDI investment in business in another country means jobs and employment for that nation.
means these employees now have disposable income to spend in shops
- this is a boost to the economy and is known as the multiplier effect
FDI by foreign businesses can increase what and how
how does the goverment and the economy benefit
FDI by foreign businesses can increase GDP
- FDI by businesses e.g opening new production process, means more jobs which means more disposable income that can be spent on businesses in that economy.
- This raises the GDP
more profit for businesses in that economy
- This means that taxes paid will increase government income , which might be spent on things e.g healthcare & education
How does FDI benefit businesses - 4
- Gives firms access to new markets - this may increase sales as there are more ppl to sell to
- FDI may reduce a firms costs e.g production & labour costs maybe cheaper in a foreign country -> means more profitable
- FDI can allow businesses to take advantage of skilled labour in that country which may increase productivity
- Obtain first hand knowledge about that country e.g legal systems, Culture e.g tastes - just by operating in a foreign market
this may allow a firm to generate more sales in a foreign country than they would by simply exporting it
