FDI stand for Foreign Direct Investment. It is direct investment into production in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.
The International Monetary Fund defines FDI as when one individual or business owns 10% or more of a foreign company’s capital. Every financial transaction afterwards is considered by the IMF as an additional direct investment. If an investor owns less than 10%, it is considered as nothing more than an addition to his/her stock portfolio.
FDI is beneficial for both the investor and receiver. Many investors of developed countries of Europe and America make investment in the developing country to target the market and to take different kinds of advantage such as highly skilled low waged employees etc.
Many Southeast Asian countries have benefited from FDI.Many of these countries encourages FDI by providing special investment privileges such as tax exemption. Advantages of Foreign Direct Investment
1. Economic development of the host country:
One of the greatest benefit of FDI is it helps in the economic development of the host country. The money invested increases the gross domestic production of a country which in turn results in reduction in the rate of unemployment.
2. Improvement in business related practices:
FDI in the host country in many cases provides training to the employed of the company. This upgrades the management and accounting system of the company and enhances the growth and development of the country.
3. Improvement in technology:
FDI introduces various advanced technology to the host country. New technology improves the quality and quantity of production.
4. Standard of living:
The standard of living of a host country increases with foreign direct investment. It brings in capital, management skills and technology and removes unproductive operation or enhances the existing...
Please join StudyMode to read the full document