Foreign direct investment (FDI) refers to an investment made to acquire a lasting interest in an enterprise operating outside the investor's home economy. While FDI can provide benefits like tax revenue and jobs, it also poses some risks to developing countries. FDI can weaken domestic industries, exacerbate income inequality, and influence political decisions through their size and power. Developing countries need to implement policies that minimize the potential negative effects of FDI while maximizing the benefits.

2.  According to the International Monetary Fund, foreign direct
investment, commonly known as FDI, "... refers to an investment
made to acquire lasting or long-term interest in enterprises
operating outside of the economy of the investor." The investment
is direct because the investor, which could be a foreign person,
company or group of entities, is seeking to control, manage, or
have significant influence over the foreign enterprise.

3.  1. When foreign investment is competitive with home investment ,
profits in domestic industries fall, leading to fall in domestic
savings.
 2. Contribution of foreign firms to public revenue through
corporate Taxes is comparatively less because of liberal tax
concessions, investment allowances, disguised public subsidies
and tariff protection provided by the host government.


4.  3. Foreign firms reinforce dualistic socio-economic structure and
 increase income inequalities. They create a small number of highly
paid
 modern sector executives. They divert resources away from
priority
 sectors to the manufacture of sophisticated products for the
consumption
 of the local elite. As they are located in urban areas, they create
 imbalances between rural and urban opportunities, accelerating
flow of
 rural population to urban areas

5.  4. Foreign firms stimulate inappropriate consumption patterns
through excessive advertising and monopolistic market power.
The products made by multinationals for the domestic market are
not necessarily low in price and high in quality. Their technology
is generally capital-intensive which does not suit the needs of a
labor-surplus economy.
 5. Foreign firms able to extract sizeable economic and political
concessions from competing governments of developing
countries. Consequently, private profits of these companies may
exceed social benefits.
 6. Continual outflow of profits is too large in many cases, putting
pressure on foreign exchange reserves. Foreign investors are very
particular about profit repatriation facilities

6.  7. Foreign firms may influence political decisions in
developing countries. In view of their large size and power,
national sovereignty and control over economic policies
may be jeopardized. In extreme cases, foreign firms may
bribe public officials at the highest levels to secure undue
favors. Similarly, they may contribute to friendly political
parties and subvert the political process of the host country.
Key question, therefore, is how countries can minimize
possible negative effects and maximize positive effects of
FDI through appropriate policies

7.  Thank You
 Presented By – Aneesh Prabhu
 sybmm roll no - 106