Foreign direct investment plays a vital role in the economic development – Explain

Foreign direct investment plays a vital role in the economic development – Explain

Foreign direct investment has a major role to play in the economic development of the host country. Over the years, foreign direct investment has helped the economies of the host countries to obtain a launching pad from where they can make further improvements.

Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. It has often been observed that the economically developing as well as underdeveloped countries is dependent on the economically developed countries for financial assistance that would help them to achieve some amount of economic stability. The economically developed countries, on their part, can help these countries financially by investing in these countries. This financial assistance can be channelized into various sectors of the economy. The channelization is normally done on the basis of the requirements of particular sectors.

(1) It has been observed that foreign direct investment has been able to improve the infrastructural condition of a country. There is ample scope of technological development of a country as well. The standard of living of the general public of the host country could be improved as a result of the foreign direct investment made in a country.

(2) It has been observed that the private sector companies are not always interested in undertaking activities that help in improving the infrastructure of the country. This is because the gains from these infrastructural activities are made only in the long term; there are no short term benefits as such. This is where foreign direct investment can come in handy. It can also assist in helping economically” underdeveloped countries build their own research and development bases that can contribute to the technological development of the country. This is a very crucial contribution as most of these countries are not able to perform these functions on their own. These assistances come in handy, especially in the context of the manufacturing and services sector of the particular country, which is able to enhance their productivity and ultimately advance from an ‘economic point of view.

(3) At times foreign direct investment could be provided in the form of technology. Else, the money that comes in a country through foreign direct investment can be utilized to buy or import technology from other countries. This is an indirect way in which foreign direct investment plays an important part in the context of economic development.