Th4.3: MOS - Promotion of FDI

Question 1

What is FDI?

Answer 1

investment by one private sector company in one country into another private sector company in another

Question 2

What does FDI include?

Answer 2

direct acquisition of a foreign firm, construction of a facility, investment in a joint venture with a local firm of licensing of intellectual property

Question 3

Why do firms tend to undertake FDI?

Answer 3

because production costs are lower in developing countries and because it enables them access to a new market

Question 4

How is it different from a loan?

Answer 4

because if the investment fails, it is the company who has to deal with it and the country does not owe money to foreigners

Question 5

It also involves the transfer of…

Answer 5

the transfer of knowledge from one country to another, with the company bringing production and management techniques and training for staff which will benefit the country as a whole

Question 6

What are three additional benefits of FDI?

Answer 6

it will create jobs and lead to the multiplier effect
labour productivity tends to increase and wages are higher
source of investment and can help fill the savings gap

Question 7

What are three problems with FDI?

Answer 7

there is usually a repatriation of profits - developing countries may find the country exploit them
country will lose some sovereignty and become dependent on another firm
environmental damage and exploitation of natural resources