Benefits of Foreign Direct Investment for Developing Countries
Foreign direct investment has become increasingly popular across the globe. This is based on the fact that it benefits both developing and developed countries. It is a form of investment where a company located in another invests in another country.
Foreign direct investment allows for inflow of funds, foreign capital and transfer of skills from one country to the other. It plays a crucial role in promoting economic growth in developing countries among other benefits.
Lowers corporate taxes-FDI lowers the level of taxation therefore, if taxation is high in a specific country, investors will shy away. However, with FDI, corporate taxes are minimized creating room for more investors. This helps to boost economic growth and growth of skilled workforce in a developing country.
Macroeconomic stability- FDI creates a stable economic environment in a developing country. It is essential to note that investors look at a country’s economic environment before investing in it.
Skilled employees- foreign direct investment enables a developing country to benefit from skilled workforce. This is very crucial in transferring capital to a different place. A company will not have to spend money in training its employees for transfer of capital. At the end of the day, the company will cut down on its operational costs and will enjoy increased productivity and profitability creating revenue for a developing country.
Good regulations-foreign direct investment also creates room for good regulations. It gets rid of unnecessary regulations that cannot benefit small and large businesses. This in turn enables companies to hire employees without any form of discrimination. Some of good regulations include anti-discrimination act and the basic health and safety act among others.
Free trade- foreign direct investment also creates room for free trade. This enables small and large companies to move capital without any restrictions and to export their products and services freely. Companies can also import products from different countries freely. This is because foreign direct investment eliminates unnecessary quotas, embargo and quotas.
National debt- FDI also helps to lower the level of national debt. This is a step that helps to build investor confidence. It also reduces the level of taxation in a developing country, creating room for more investors and lowering interest rates while enhancing economic growth.
Transfer of technology- a developing country helps a developing country to enjoy advanced technology and to benefit from a more skilled workforce. As a new company invests in another country, it employs workers from the host country and the mother country. Employees exchange skills and ideas thus creating a more skilled workforce.
The company also comes with new technologies that help to benefit the developing country.
Minimum wage-foreign direct investment eliminates minimum wage. This is one of the factors that help to create a free labor market and increase employment rate. As a result, firms in a developing country get to pay employees good salaries, enjoy increased productivity and profitability.
In conclusion, foreign direct investment helps to improve productivity, boost employment and enable citizens of a developing country to enjoy good standards of living. However, a developing country should always create a favorable environment for direct investment to enjoy its benefits.
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