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Foreign Direct Investment In Developing Countries

1500 Words6 Pages

Introduction
In the past couple of years, policymakers, especially in the developing countries or regions, have come to the conclusion that foreign direct investment (FDI) is of great need to the improvement the growth in their economies. It is argued that FDI can create employment, increase technological development in the country to which the investment is being made and improve the economic condition of that country in general (Adewumi, 2006).
In most African countries, there is a great evidence that insufficient resource to finance long term investment is a main problem. This lack of investible funds is a great hindrance to economic growth and this problem of insufficient resources is making it very hard to achieve the millennium development …show more content…

Furthermore, some scholars hold the belief that FDI has no positive contribution to the economic growth of the host country at all. So this reflect the lack of consensus opinion on the impact of FDI on economic growth especially in developing countries. Other scholars take a neutral position on the subject arguing that FDI to economic growth actually depends on many factors and it varies over time and from one host country to another (Adewumi, …show more content…

For instance, given the strength of MNEs they possess the capacity of dislocating local firms who cannot cope with the competition from foreign industries, therefore reducing the growth of the local industries. Again if FDI is not properly regulated it can serve as a source of capital flight from the host countries to home countries. For instance, if there are some risks in the host country whether political risks or economic risks that could result to a large flow of capital from the host country to the home country if there is such practice are not properly legislated. This therefore could have some adverse effect on the host economy especially if such capital is sourced for within the host country. Lastly, because MNEs possess higher production capacity, FDI can then cause large scale environmental harm which sometimes is often not well taken care of more especially in the mining sector (Bora

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