Favorable impacts of foreign investment on Bangladesh economy:
1) Overcoming domestic resource constraint: It inflows are believed to be more
stable and easier to service than other sources of foreign private capital such as
commercial debts
or
portfolio investment.
2) Raising the productivity of
labor and capital: FDI raises the productivity of labor, and employment
quality. Economies of scope and scale and managerial
efficiency can raise the productivity and
returns of all production inputs.
3) Generating employment: Increased employment, like investment, will have a
multiplier effect on the economy and stimulate a dynamic growth cycle.
4) Easing the balance of payments constraints: It constitutes an inflow on the
capital account and allows the economy to sustain the deficit on the current account without devaluing the currency.
5) Raising exports: It is in fact one reason why developing country govt. tries to
attract FDI through the creation of
export processing zones (EPZs).
6) Access to technology: FDI brings in new technology, which may have positive spillover effects for other local firms.
7) Access to markets: It can help host countries
gain easy access to the lucrative markets of the rich countries.
8) Benefits
to environment: It have
better
access
to and
knowledge
of environmentally sound technologies and are expected to bring such
technologies to the host country.
9) Benefits
to
consumers: Consumers are benefited from increased FDI inflows in the form of
lower prices and improved product quality.
10) FDI may also contribute increased revenue to the government.
Adverse impacts of foreign investment on Bangladesh economy:
1. Impact on domestic savings: The FDI may also have a negative
effect on
domestic savings, as it gives room for an increase in consumption in the recipient country.
2. Decapitalization effect: FDI brings in capital, but also leads to a stream of
return flow of profit, other investment incomes and accumulated interest, and repatriation of
capital.
3. Effects on balance of payments:
FDI
have a positive effect on balance of
payments, there must be a strong enough positive trade effect to offset the negative decapitalization effect.
4. Denationalization effect: The ownership of firms is transferred from domestic to
foreign hands and the foreign share of the nation’s wealth stock increases
relative to local share.
5. Impact on development: The impact of FDI on development also depends upon
the
type of FDI, i.e., whether it is in the form of “Greenfield investment” or
“merger and
acquisition”.
6. Instability: Contrary to the conventional wisdom that FDI is a stable form of longer-term foreign capital inflows, an UNCTAD
report shows that FDI can also
be
a source of considerable financial instability.