this slide about direct investment and its impacts on the economy of any country

1. WHAT IS FOREIGN DIRECT INVESTMENT?
WRITE ITS ADVANTAGES AND
DISADVANTAGES.
INTRODUCTION
DEFINITION
MOTIVES
ADVANTAGES
DISADVANTAGES

2. INTRODUCTION
 Foreign direct investment (FDI) is defined as a
long-term investment by a foreign direct investor
in an enterprise resident in an economy other than
that in which the foreign direct investor is based.
The FDI relationship consists of a parent enterprise
and a foreign affiliate which together form a
transnational corporation (TNC). In order to
qualify as FDI the investment must afford the
parent enterprise control over its foreign affiliate.
The UN defines control in this case as owning 10%
or more of the ordinary shares or voting power of
an incorporated firm or its equivalent for an
unincorporated firm.

3. DEFINITION
 A foreign direct investment (FDI) is an
investment made by a firm or individual in one
country into business interests located in
another country. Generally, FDI takes place when
an investor establishes foreign business
operations or acquires foreign business assets in
a foreign company. However, FDIs are
distinguished from portfolio investments in
which an investor merely purchases equities of
foreign-based companies

4. MOTIVES
• Resource Seeking
 Market Seeking
 Efficiency Seeking
 Strategic Asset Seeking

5. ADVANTAGES
 Access to Markets
 FDI can be an effective way for you to enter
into a foreign market. Some countries may
extremely limit foreign company access to
their domestic markets. Acquiring or starting
a business in the market is a means to gain
access.

6. ADVANTAGES
 Access to Resources
 FDI is also an effective way for you to acquire
important natural resources, such as precious
metals and fossil fuels. Oil companies, for
example, often make tremendous FDI`s to
develop oil fields

7. ADVANTAGES
 Costs of Production
 FDI is a means for you to reduce your cost of
production if the labor market is cheaper and
the regulations are less restrictive in the
target foreign market. For example, it's a
well-known fact that the shoe and clothing
industries have been able to drastically
reduce their costs of production by moving
operations to developing countries

8. ADVANTAGES
 Advantages to Foreign Countries
 FDI can be a tremendous source of external
capital for a developing country, which can
lead to economic development

9. ADVANTAGES
 Tax Revenue
 Tax revenue is generated from the products and
activities of the factory, taxes imposed on
factory employee income and purchases, and
taxes on the income and purchases now possible
because of the added economic activity created
by the factory. Developing governments can use
this capital infusion and revenue from economic
growth to create and improve its physical and
economic infrastructure.

10. ADVANTAGES
 Balance Of Payments
 When the Foreign capital is injected in a
country and the leakages of capital are
reduced, then the capital account of the
country improves.Thus balance of payments
and terms of trade improves

11. ADVANTAGES
 Increased Employment
 The inward FDI has the potential of job
creation for the host country. Increased
demand of factors of production leads to
higher wages.

12. ADVANTAGES
 Global Integration
 A developing country, which invites FDI can
gain a greater foothold in the world economy
by gaining greater access to global market.

13. DISADVANTAGES
 Economic Conditions
 Much of FDI takes place in the developing
world, which is just developing its economic
systems.The market conditions in the
developing world can be quite unstable and
unpredictable.

14. DISADVANTAGES
 Political and Legal system
 A bigger problem may be unstable or
underdeveloped political and legal systems. A
company may have to deal with a corrupt or
unstable political system. Additionally, the
legal system may be underdeveloped.
Contracts and property rights may not be
easily enforced.

15. DISADVANTAGES
 Political Influence
 MNCs can theoretically exert a huge amount
of power in a developing country because of
the capital it brings into the country.This
influence may be compounded if a corrupt
government is in place willing to comply with
deals that may not be in the best interests of
its citizens.

16. DISADVANTAGES
 Increased Inflation
 Inward flow of financial resources increases
the supply of money leading to rise in prices
as well as when demand of domestically
produced raw material increases it also leads
to increase inflation.

17. DISADVANTAGES
 Unemployment
 production are adopted due to FDI inflow in a
populated country like Pakistan, then the
problem of unemployment cannot be root
out. If capital intensive techniques use of
MNC’S

18. disadvantages
 Exploitation of Domestic Firms
 The local firms have many problems due to
increased FDI in the country.Therefore, the
attractiveness of FDI should be based on
protection policy of local firms

19. DISADVANTAGES
 Pollution
 The MNC`s will create many environmental
problems like air pollution and water
pollution affect the life of common masses
especially living in nearby areas.

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