The issue of Foreign Direct Investment (FDI) has been receiving phenomenal attention from many governments. Bangladesh is not lagging behind from it. Economic development for the developing countries like Bangladesh is largely dependent on FDI. The major challenges for the host country are to ensure an eye-catching and conducive investment climate to foreign investors for FDI inflow. In recent years, Bangladesh has been devoting efforts for attracting FDI offering a lot of lucrative incentives and benefits. Though attempts taken to increase FDI inflow, the result achieved is not appreciable enough for Bangladesh. Proponents of Foreign Direct Investment argue that it brings prosperity to the recipient countries through technological transfer, increasing volume of exports, enhancing job opportunities and increasing government revenue. Foreign Direct Investment (FDI) increases the volume of domestic capital to finance new development projects in the country and simultaneously provides access to new technology, managerial and marketing know-how. But the inflows of FDI are not praiseworthy though it has an increasing trend.
DETERMINANTS OF FDI:
Arguments supporting FDI in developing countries suggest that recipient countries need to fulfill some preconditions to create a favorable business environment. It has certain advantages to both the host country and the investor. Host countries’ macroeconomic policy, tax regime, regulatory practices are critical determinants for attracting FDI. The foreign investors are also benefited by penetrating a market, gaining access to raw materials, diversifying business activity, better rationalizing production processes and overcoming some exporting drawbacks, like trade barriers and transport costs. Internal factors of host countries are important determinants for attracting FDI. Host country location related factors that mainly comprise of natural resources, cheap labor, proximity to markets and political, economical, legal and infrastructural factors play a significant role to motivate investors. Some other factors such as resource seeking, import substituting, and export platform also create supporting conditions for FDI inflows to developing countries. The host countries are inspired to seek FDI for generation and expansion of job opportunities, increasing indirect competition within domestic markets and transfer of improved technology and management techniques, transferring technical know-how etc. FDI enriches local markets of host countries with quality goods and products as well as it minimize import cost of the country.
ADVANTAGES OF FDI:
• Causes a flow of money into the economy which stimulates economic activity • Employment opportunities in foreign market are increased • In the long run the aggregate supply shift outward
• Aggregate demand will also shift outwards as investment is a component of aggregate demand • FDI allows transfer of capital and technology, which is not possible through financial investment in goods and services. • FDI also promotes competition in the domestic input market • Profits generated by FDI contribute to the corporate revenue in the host country • Operation of new ventures by FDI leads to employee learning in the host country that learns how to manage and operate the businesses. This contributes to human capital development of the host country • Profits generated by FDI contribute to tax revenues in the host country • Government income is also increased
• The government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it
DISADVANTAGES OF FDI:
• Inflation is increased
• Domestic firms may suffer if they are relatively uncompetitive • If there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may...
Please join StudyMode to read the full document