How important is FDI for developing economies?
Is the quantum FDI very important? Is it the cause or the effect of economic development? Intuitively we know that it is important. The question is how important. The decision to invest in a particular country depends on several factors, including political situations, economic conditions, infrastructure, business growth, etc. Governments also play a significant role in attracting foreign investors by offering subsidies or tax concessions. FDI allows the transfer of technology—particularly in the form of new varieties of capital inputs—that cannot be achieved through financial investments or trade in goods and services. FDI can also promote competition in the domestic input market. Recipients of FDI often gain employee training while operating the new businesses, which contributes to human capital development in the host country. Profits generated by FDI contribute to corporate tax revenues in the host country However, if we look at two comparable economies (in terms...
