Government intervention on beneficial FDI inflow 6
Government intervention to prevent negative impact of FDI 10
The essay outlines the importance of the government intervention on Foreign Direct Investment (FDI) inflow. FDI inflow is considered to bring benefit to the host countries regarding to the advanced technology transfer, know how demonstration effect as well as new ideas and entrepreneurial skills attached with FDI are obtained through labour training and skill acquisitions or the introduction of alternative management systems and organization arrangements. However, without government intervention or imposing regulation on every single aspect of the trend, FDI will have negative impact on domestic markets such as losing profit in local industry due to higher technology and cost effective production line, or negative impact on trade balance of the host country. Government intervention is also playing an important role in preventing MNE(s) from exploiting natural resources, polluting environment and illegally using children labour.
Beginning in the mid-1980s, world foreign direct investment (FDI) flows increased rapidly with a growing number of multinational enterprises (MNEs) as the new trend to increase international economic activities. Both industrialized and developing countries are becoming more receptive to FDI flows such that a majority of FDI policy changes in these countries are in the direction of more liberalization of FDI inflows (United Nations, 1992). Although FDI flows and stocks are concentrated mostly in industrialized countries (Lucas, 1990), developing countries, especially in the Asia-Pacific region, recently showed a noticeable increase in their absorption of world FDI flows (United Nations, 1992, 1995). Thus, FDI in the recent period has become the principal source for external capital for many developing countries,... [continues]
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