One of the advantages of foreign direct investment is that it helps in the economic development of the particular country where the investment is being made.
This is especially applicable for the economically developing countries. During the decade of the 90s foreign direct investment was one of the major external sources of financing for most of the countries that were growing from an economic perspective. It has also been observed that foreign direct investment has helped several countries
when they have faced economic hardships.
An
example of this could be seen in some countries of the East Asian region. It was observed during the financial problems of 1997-98 that the amount of foreign direct investment made in these countries was pretty steady. The other forms of cash inflows in a country like debt flows and portfolio equity had suffered major setbacks. Similar observations have been made in Latin America in
the 1980s and in Mexico in 1994-95.
Foreign direct investment also permits the transfer of technologies. This is done basically
in the way of provision of capital inputs. The importance of this factor lies in the fact that this transfer of technologies cannot be accomplished by way oftrading of goods and services as well as investment of financial resources. It also assists in the promotion of the competition within the local input market of a country.
The countries that get foreign direct investment from another country can also develop the human
capital resources by getting their employees to receive
training on the operations of a particular
business. The profits that are generated by the foreign direct investments that are made in that country
can be used for the purpose of making contributions to the revenues of corporate taxes of the recipient
country.
Foreign direct investment helps in the creation
of new jobs in a particular country. It also helps in increasing the salaries of the workers. This enables them to get access to a better lifestyle and more facilities in life. It has normally been observed that foreign direct investment allows for the development of the manufacturing sector of the recipient country.
Foreign direct investment can also bring in advanced technology and skill set in a country. There is also some scope for new research activities being undertaken.
Foreign direct investment assists in increasing the income that is generated through revenues
realized through taxation. It also plays a crucial role in the context of rise in the productivity of the host countries. In case of countries that make foreign direct investment in other countries
this process has positive impact as well. In case of these countries, their companies get an opportunity to explore newer markets and thereby generate more income and profits.