Advantages and Disadvantages of FDI

FDI means foreign direct investment; FDI is always a tricky issue for any government because some people support it while others are in opposition and therefore whenever government decides to allow FDI in a country it has to face many questions. Given below are some of the advantages and disadvantages of FDI –

Advantages of FDI

  1. It brings lot of new investment into the country which can be a catalyst for growth because we all know without investment no country can sustain high levels of growth.
  2. It is quite helpful for the customers because due to it the competition between domestic and foreign corporations leads to companies offering products at very competitive rates and therefore customers can have high quality products at cheap rates.
  3. For starters it will create new job opportunities because foreign players have to employ local staff in order to run their business which would mean plenty of employment prospects for youngsters of the country.

Disadvantages of FDI

  1. Since foreign firms will bring new technologies and money with them which would result in lot of small businessman and domestic companies going out of business as foreign companies have advantage of scale of operations and also top talent with them. The proverb big fish eat little fish scenario may happen due to foreign direct investment.
  2. Since these companies will also have more technology and they will use capital intensive methods, it will affect the jobs of many people because eventually after some time they might not be needed.
  3. Chances of these foreign firms becoming monopolies due to their large size and then charging exorbitant rates from consumers cannot be ruled out and therefore government should ensure that they have proper policies and systems in place to keep a check on such practices.

It is due to above advantages and disadvantages any government has to walk a tight ropeway when it comes to allowing FDI into the country.

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