FDI

FDI

1. lower extreme poverty

   • also formal jobs can improve basic nutrition and access to schooling for the young generation.this can then lead to higher prospects for employment.
     • Foreign multinationals might take advantage of weak laws on environmental protections this could lead to economic growth not being sustainable as the production relies on un renewable materials which therefore means if they are over-farmed there is no way to create revenue long term
       • The impact depends on whether inward FDI is sustainable in the long run. This is because when natural resources become scarce average costs will increase.
         • so the mnc will relocate to a different country with less average cost of production and has more natural resources.This will lead to a decline of HDI and GDP for the ledc,
     • locally sourced components like materials for FDI projects is often very low – this reduces the multiplier effect of inward investment.
   • FDI into Industries such as tourism can help create formal employment that's more inclusive. A rise in employment and incomes for new jobs created by FDI can have a direct benefit HDI (life expectancy, years of education, income per person and living standard.)this give more opportunities for the young and fast-growing population in Less developed countries.
     • Multinationals have been criticised for poor working conditions in foreign factories as they are monopsonies.this not benefit HDI as they could end up in a low-paid dangerous job therefore life expect and standard of living are lowered.

2. one potential benefit of inward fdi for developing countries is that it can increase growth rate .injection of fdi into the circular flow will lead to investment in physical productive capacity and Industries

   • workers will have access to improved capital machinery which over time can raise their productivity output per capita is mainly determined by productivity if the workers are trained to use machinery, new technology effectively and use the more productively efficient work method of specialization there productivity will increase.
     • this leads to the increased amount of capacity that can be produced therefore increasing aggregate supply
       • the rise in supply of stock can also lead to an increase in exports therefore a increase in ad Overall high levels of inward fdi leads to an outward shift in long run aggregate supply and ad
         • Investment and production designed for export also makes a country vulnerable to global economic shocks as there income is relinent on the ability to sell their exports.
       • an increase in productivity will lead to a rise in the steady rate of growth
         • However mncs may only employ local labour in lower-skilled jobs rather than skilled, managerial roles this counteracts the benefit that workers will now be more productive due to new capital
           • In theory, inward FDI is beneficial to both AD and LRAS for ledc countries but in practice FDI might be too heavily dependent on exploiting countries that have minimal trade laws which then limits the tax revenues that the government receives.
   • More products also means more tax revenue for the government.
     • Profits from FDI are often diverted back to shareholders in the host country (this is a leakage in a circular flow therefore they can avoid tax ,This means less government spending,less consumption and less benefit from the multiplier effect

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