Question-   Foreign Direct Investment

Solution-

 

Is FDI a form of colonialism or ethical investment?

 

This debate has been a sticky issue for years. I believe FDI does more good than harm - plays an important role in creating not only favorable working opportunities but also knowledge, skills and technology for developing countries. FDI is not just an exchange of goods and services, but also a profound form of human relations across country borders. Foreign companies bring wealth, employment, knowledge, business projects, and corporate values to a host country.

Many third-world countries, or at least those with history of colonialism, worry that foreign direct investment would result in some kind of modern day economic colonialism, which exposes host countries and leave them vulnerable to foreign companies’ exploitations. However, if the FDI was done properly, carefully when stepping into any developing countries, there are no reasons to object, especially the advantages outweigh disadvantages.

When more industries are set up in a developing economy, it helps in the generation of large scale employment which contributes to the economic development of the host country. It may also provide the employees with a better quality of work, more opportunities to go to foreign countries, experience different cultures, meet new people, build a diverse network. This will ensure they bring new perspectives and ideas back home that can be implemented and result in better productivity.

The revenues generated by these companies contribute to the GDP of the host country. Further, as listed earlier, it helps in the generation of employment, this improves the purchasing power of the employees and thus boosts the economic activity in the country. It is universally agreed that more competition is beneficial to consumers. Why is that so? When there are multiple players in the market, they try to lower the cost as much as possible to maintain a profit margin as they cannot increase the market price. Further, they are also constantly innovating in order to stay relevant and to not lose their market share to competitors – this gives consumers access to better quality products.

Similarly, when an established company from a developed country enters the market in a developing country, they usually possess better technology and business practices. Hence, domestic competitors will be forced to innovate and meet up to international standards.By taking a few precautionary measures and by amending the government policies, the harmful effects of FDI can be avoided.

 

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