Foreign Direct Investment Essay

Introduction

One of the economic problems of developing countries like India is that they do not have enough national savings and are in a constant need of foreign capital in forms of both direct and indirect investments to finance their investments. Foreign direct investment (FDI) is a process whereby the residents of the source country attain ownership of assets with the intention to control the production, distribution and other activities of a firm in the host country. FDI has become an attractive alternative to bank loans as a source of capital inflows, that too, without undertaking any risks linked to the debt. Also, FDI brings with it considerable benefits: technology transfer, reduced cost through realization of economies of scale, management know-how, and export marketing access. The contribution of FDI in economic progress of the host economies can be both direct as well as. FDI adds directly to employment generation, capital, exports, and new technology in the host country . In addition, local firms may also benefit from indirect means because of the fact that that FDI brings new intermediate goods, bundle of capitals, technology transfers and skills in the form of externalities. Such pecuniary benefits or advantages or externalities are commonly known as spillovers . As a result, it is widely recognized that FDI is an important source for industrial development in developing countries in view of the fact that it brings many benefits with it.

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