Foreign direct investment

Foreign direct investment

1. Key drivers of FDI

   • higher profits corporate rent seeking
   • cost reduction outsourcing and offshoring
   • market access rising per capita incomes
   • avoiding trade barriers bypassing tariff and non-tariff barriers

2. policies to attract FDI

   • low corporate tax
   • flexible labour markets
   • tax reliefs
   • open capital markets
   • high quality infrastructure
   • cheap labour

3. advantages of FDI

   • improved infrastructure
   • better training for local workers
   • technology transfer
   • more competition = lower cost for consumers
   • job creation
   • grows nations export capacity
   • improved productivity
   • higher capital intensity

4. risks of FDI

   • rise in inequality
   • land grabs
   • limited technology transfer
   • transnationals may have poor ethics
   • monopsony power of transnational companies which are able to negotiate highly favourable prices.
   • may not pay much tax
   • increased pollution