How would you argue for and against foreign investment?
How would you argue for and against foreign investment?
(A) Arguments against foreign investment:
(i) Foreign investment leads to rise in claims by the foreigners against assets in the domestic economy, implying a concentration of economic power with the foreign investors in the domestic economy.
(ii) Greater the foreign investment, larger is the flow of investment income (profits, interest, and dividends) out of the domestic economy, implying a constant drain of foreign exchange out of the country.
(B) Arguments in favour of foreign investment:
(i) Overall investment in the domestic economy expands, leading to a rise in the level of output and employment.
(ii) If direct foreign investment is directed towards export-oriented industries, exports will rise. Increase in exports causes a rise in AD. It is like an injection into the circular flow of income.
(iii) FDI eases pressure on the scarce domestic resources. Accordingly, domestic resources can be released for the production of such goods (public goods) where private investment is low due to low profits.
(A) Arguments against foreign investment:
(i) Foreign investment leads to rise in claims by the foreigners against assets in the domestic economy, implying a concentration of economic power with the foreign investors in the domestic economy.
(ii) Greater the foreign investment, larger is the flow of investment income (profits, interest, and dividends) out of the domestic economy, implying a constant drain of foreign exchange out of the country.
(B) Arguments in favour of foreign investment:
(i) Overall investment in the domestic economy expands, leading to a rise in the level of output and employment.
(ii) If direct foreign investment is directed towards export-oriented industries, exports will rise. Increase in exports causes a rise in AD. It is like an injection into the circular flow of income.
(iii) FDI eases pressure on the scarce domestic resources. Accordingly, domestic resources can be released for the production of such goods (public goods) where private investment is low due to low profits.
