Analyse the advantages and disadvantages of foreign direct investment for developing countries.

7 03 2012
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Question 4 
Analyse the advantages and disadvantages of foreign direct investment for developing countries.
First off, foreign direct investments are seen as a capital inflow of funds, or an investment abroad by external countries. Also, FDI consists of many multinational companies, where outside companies conduct business and production/service in different countries rather than their origin country. The problems and disadvantages with these MNCs, is major exploitation for cheap manual labor, capital intensive machinery that causes high unemployment, transfer prices for tax evasion, tax control and influence over the LDC, and negative capital outflow for the LDC. 
The advantages is that FDI allows for an increase in local investments, stimulation of the local economy, increase in GDP, efficient allocation of resources, increase in employment, increase in merit goods such as education and productivity, and a large gain in tax revenue from MNCs. The benefits outweigh the cons because it allows for total increase of education and employment, such an increase causes a major advantage towards becoming a developed country. Despite possible capital outflow, MNCs will help pull a LDC out of being undeveloped. 
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