Foreign Direct Investment and Development Aid

Foreign Direct Investment and Development Aid

1. What is FDI

   • Investment made my company/individual in foreign country OR business interests in another country
   • Example - building factory, opening store, taking ownership of mining factory

2. Governments and encouragement of FDI

   • Offer tax breaks, subsidies, grants, low interest loans
   • Lift restrictions, less regulations for foreign firms to invest
   • Invest in own infrastructure
   • Invest in education so people can work in foreign companies

3. Development aid

   • Money and other forms of assistance given to developing countries by developed countries
   • Money - grants, aid, loans (if no/very little interest rate)
   • Assistance - resources, advice

4. Types of Development Aid

   • Bilateral aid - given by one country to another - ties attached
   • Multilateral aid - govt gives money to international agency E.G. the World Bank and then agency distributes to other causes - no ties attached
   • Grants - govt gives cash sum, normally for particular project - doesn’t have to be repaid - could also take form of advice
   • Soft loans - money given to be repaid and has low or no rate of interest
   • Tied aid (bilateral) - assistance given in return for something - usually funs have to be used to buy goods from donor country

5. Why Countries Receive Low Levels of Investment

   • Low income levels
   • Poor infrastructure
   • Corruption
   • Regulations - corporate tax, high wages, etc.
   • Political instability
   • Low labour skills