Impact Of FDI/trade Liberalisation On Economy

Question 1

FDI chain of analysis

Answer 1

Rise in aggregate demand
Create jobs (construction, factories/shops, suppliers (especially JIT)
Multiplier effect - rise in incomes,GDP, increased consumer spending, boost other sectors
- large increase in economic growth

Question 2

Benefits of FDI

Answer 2

Skills and technology transfer
- lean production/kaizen
Workers can set up their own business and benefit economy by providing employment
Can also apply skills in businesses, increase productivity and faster rates of econ. Growth

Question 3

Disadvantages of FDI/trade liberalisation/growing power of Chindia

Answer 3

Increased competition

• domestic producers may go into decline
• structural unemployment - georgraphiclaly or occupationally immobile
• poverty in developing economies with no welfare safety nets

Question 4

Disadvantages of FDI

Answer 4

• footloose (start up elsewhere)
  Governments reduce employee protection and tax to keep MNcs
• profits repatriated
  Damage host country balance of payments in long term
• high value jobs in foreign country - can damage long term growth of country if over reliant

Question 5

Define Foreign Direct Investment

Answer 5

Occurs when a business invests in another country