Foreign Investment or Foreign Direct Investment is an investment by investor from other country. The foreign company or investor has a control over the company purchased for which control means owing some percentage of business which is generally 10%. It is an effective way to enter into foreign market and acquire natural resources and manpower at a cheaper rate.
Contribution of Foreign Investments in worldwide development
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It results in emerging of new employment options. Say if a large factory is constructed in a small developing country, there will be need of some labor whether for technical work or for manual labor work. This will result in new jobs and foreign money being pumped into the economy. Once the factory is setup, to run the same, again employees will be needed thus growing employment opportunities for local employees.
Also, tax revenue is generated from the products and activities of the factory and taxes on the income and purchases now possible because of the added economic activity created by the factory government revenue will also increase. Also economy will grow at a drastic pace and lifestyle of local resident will also improve. Foreign investment reduces the disparity between revenues and costs. With such, production costs will remain same and products can be sold in global market in a competitive manner. It will ease international trade within the country as there are countries that requires their presence in global market.
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Foreign Investment highly stimulatesthe economic development of country and creates conductive environment. Foreign direct investment creates new jobs, as investors build new companies in the target country which results in more purchasing power in the hands of employees and workers which boosts trading in the country. It benefits the Human Resource of the country as experience gained by the workforce by distinct training and education is highly competitive. Productivity of workforce increases with better training.
In general, foreign investment is expected in fields such as air transport services and travelling services, Assets reconstruction companies, Automobiles, Banking- Private as well as Public sector, Biotechnology and chemical industry, Broadcast industry, coal and other mining industries, Core investment companies, Food products and jewelry, Healthcare and medical industry, Information Technology and other service sectors.
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Many countries have import tariffs that must be paid for services as goods as well. Import/Export businesses can struggle as more tariff will increase their product cost. With the help of Foreign Investment it is possible to limit or eliminate the tariffs imposed by government. With this local business gets more control over local markets.
To boost Foreign Investment many governments have placed tax incentives on this type of investment thus country as whole can achieve development. Workers who are employed by such companies can travel overseas and experience new cultures.
It also carries certain risk factors and the biggest one is that it limits domestic investments. Also political instability affects the business environment on the go. It can also be expensive if the value of currencies that is its exchange rates differ on a huge scale. All these provides foundation for creating a developing nation.