Impact of Foreign Direct Investment (FDI)
1. Employment Impact.
Another beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there. The effects of FDI on employment are both direct and indirect. Direct effects arise when a foreign MNE employs a number of host-country citizens. Indirect effects arise when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE (Hill, 2013).
2. Balance of Payments Impact.
FDI's effect on a country's balance-of payments accounts is an important policy issue for host governments. A country's balance-of-payments accounts track both its payments to and its receipts from other countries. Governments normally are concerned when their country is running a deficit on the current account of their balance of payments. The current account tracks the export and import of goods and services, A current account deficit, or trade deficit as it is often called, arises when a country is importing more goods and services than it is exporting. Governments typically prefer to see a current account surplus than a deficit (Hill, 2013).
3. Resource Transfer Impact.
MNEs play a major role, especially in developing countries, in applying and transfer ring new technology. Technology can stimulate economic development (growth) and industralization. It can be incorporated in a production process, in a product, in research development, and in skills development (management skills, labor force skills, and entrepreneurship). The technology transfer may lead to an increase in the efficiency of the local firms (efficiency spillover) (Vaidya, 2006).
4. Growth and Productivity.
FDI has an effect on the gross domestic product (GDP) of a country because may add to the number of production sites or cause an increase in the productivity rate. The "competitive pressure" increases, motivating higher efficiency in host country companies. That is, local firms are pressured by foreign competition to seek more efficient methods in their operations (Vaidya, 2006).