For larger plants (those with more than 50 employees), the analysis found no productivity gains once plant-specific differences were accounted for, indicating that foreign entities are selectively investing in the more productive firms. The important question for policymakers in these countries is what benefits developing economies accrue from foreign direct investment and whether they outweigh the costs of attracting such investment. FDI is the major monetary source for economical development in India. A new report and investor survey published today by the World Bank Group concludes that, on balance, foreign direct investment (FDI) benefits developing countries, bringing in technical know-how, enhancing work force skills, increasing productivity, generating business for local firms, and creating better-paying jobs. Evidence from Venezuela. with Honors from Brown University in Philosophy and Mathematics and an M.A. Andrea Hill is a Doctor of Business Administration (DBA) candidate in Strategy at Harvard Business School. FDI has benefited countries through: Raised living standards in emerging markets. FDI leads to increase in the productivity of the country. Should Countries Promote Foreign Direct Investment? Learn more about Footnote and our contributors. Many developing countries need FDI to facilitate economic growth or repair. Before studying at Harvard, Andrea earned a B.A. This kind of technology transfer is the reason many developing countries are encouraged to attract foreign direct investment (FDI) as a means of advancing their own domestic industries. It brings job opportunities. But recent work also points to some potential risks: it can be reversed through financial transactions; it can be excessive owing to adverse selection and fire sales; its benefits can be limited by leverage; and a high share of FDI in a country's total capital inflows may reflect its institutions' weakness rather than their strength. Both economic theory and recent empirical evidence suggest that FDI has a beneficial impact on developing host countries. More than a decade after Aitken and Harrison’s work, there is still disagreement about the impact of FDI on developing economies.7 To attract foreign investment, countries often offer subsidies, tax breaks, favorable tariffs and other inducements. (GDP) 2. It also implies that FDI allows supply chains to expand by turning developing countries into “supply depots.” To make matters worse, more resource depletion means more ecological addition in the form … This finding suggests that FDI can promote unsustainable resource use. This kind of technology transfer is the reason many developing countries are encouraged to attract foreign direct investment (FDI) as a means of advancing their own domestic industries.

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