The Foreign Direct Investment Define and Its Advantages

Queconomics – Foreign direct investment define as the productive assets or investment in a country by investors from abroad. The investors may individual investors or investment companies.

The companies become multinational corporations, as the company now operates in more than one country. This is a basic aspect in the integration of international economic. It creates long-lasting and stable relations between countries all over the world.

FDI is an important line for the transfer of technology between countries. This investment promotes trade internationally by giving access to global markets, and can boost the economic growth.

This gives control on the company’s operations. This kind of ownership gives an opportunity to the investors to influence and manage the operations of the company actively.

Advantages of Foreign Direct Investment Define for Investors

This type of investment offers advantages, not only for the investors, but the destination countries also get the benefits. For the business companies, this investment offers the following advantages:

Market diversification

Investments help investors to explore and expand wider markets overseas. It’s important that the market in the home country reached the mature market phase with the growth opportunities that is low.

Access to resources and labor

The cost of resources such as raw materials and workers is relatively cheap in the developing countries. The investors are able to exploit both to create a competitive advantage and support profitability in global markets.

The tax incentives

Governments in host countries usually provide a number of incentives to the investors such as taxes in order to attract capital from abroad.

Therefore, the foreign investors will pay taxes that are lower compared to what they pay in their home country which will increase their profits.

Advantages for the Destination Country

This type of investment also brings advantages for the destination country. Those advantages are as follow:

  1. Encouraging the growth of country’s economic. It is one the GDP component. Hence, the bigger the money they invest, the bigger the country’s GDP.
  2. Increased employment opportunities. It creates jobs opportunity for people, increases the labour demands and also reduces the unemployed in the country they invest.
  3. The development of human capital. Local workers will get a better training that will lead to improved human resources
  4. Access to and technology, skills and experts. The transfer of knowledge and technology will be able to help reducing the dependence on primary products and diversify the country’s economy.
  5. Growing the capacity for exports. The invested country may open this investment for strategic sectors in exports and related sectors.
  6. Addressing the gap in domestic savings. It allows more capital per worker to be utilized in the production.

Investment from foreign parties provides an opportunity for the destination country to develop further. Understanding the foreign direct investment define gives you a deeper understanding of the benefits for investors and destination countries.