Advantages of Foreign Direct investment in Developing Countries
Foreign direct investments can have very good impacts on the global economic growth. As a result of this, it is always of great importance to the emerging economies or developing countries as some refer to them. It should be noted that through foreign direct investment, developing countries are able to get funding and expertise that is highly needed by smaller domestic companies for their expansion. Over the years, there are quite a number of developing countries that have benefited from foreign direct investment initiatives.
There are several benefits that developing countries have already acquired and will receive from foreign direct investments. One of the advantages is that foreign direct investments allows finances to freely move into the businesses or projects that present the best prospects for growth in developing countries. This is because; investors are always in the rush to acquire the best returns for their investments with the least risk. As a result of this, several companies in emerging economies have been able to get boosts that have earned them great profits, thereby driving upward the GDP of their respective countries.
As a result of the foreign direct investments that developing countries have been receiving, quite a number of businesses within their borders have acquired competitive advantage. Even though this does not completely eliminate the impacts of politics, bribery and cronyism, it has significantly reduced them. This has enabled many businesses to be able to bring their goods and services to the market at the right time and in turn, rake in great rewards. With this, developing countries generate revenues from increased imports and exports, further enhancing their economic stability.
In most developing countries, lack of skilled workforce is one of the major setbacks. However, this is a problem that has been solved by foreign direct investment to grater lengths. To foreign firms that invest in developing countries or any other part of the world, skilled labor is a major concern. Since most developing countries lack have for a long period of time run low on skilled labor, most foreign firms have been pushed to training and education a larger percentage of the workforce in order to conduct their operations. As a result of this, most developing countries can now boast of having skilled labor. In fact, foreign direct investment plays a critical role in human capital development in emerging economies.
Foreign direct investment is also beneficial to developing countries since it allows for the transfer of technology especially in the form of new capital inputs. Since various developing countries lack sophisticated technology but present better prospects for investments, foreign investors bring in advanced technology when starting up projects. The technology not only benefits the investors in their operations but also the residents of the countries where the investments are made.
The profits that are generated through foreign direct investment in developing countries make great contributions to corporate tax revenues in the countries where the investments are made. Thus, the investors as well as consumers will be well cushioned against taxes that may be incurred as a result of high-level taxation.
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