What benefits do proponents expect a country to reap
from FDI inflows? Because it embodies technology and
know-how as well as foreign capital, FDI can benefit host
economies through knowledge spillovers as well as linkages
between foreign and domestic firms. Potential positive
effects include productivity gains, technology
transfer, exposure of domestic firms to new processes,
managerial skills and know-how, enhancements to employee
training, development of international production
networks, and broader access to markets. When
new products or processes are introduced to the domestic
market by foreign firms, domestic firms may benefit
from the accelerated diffusion of new technology. In
some cases, this might occur simply by domestic firms
observing foreign firms, and in other cases through labor
turnover as domestic employees hired by foreign firms
move to domestic firms. These benefits, together with
direct capital financing, suggest an important role for
FDI in modernizing national economies and promoting
economic development.