Impact of Foreign Direct Investment on Economic Growth Sample Essay

Impact of Foreign Direct Investment on Economic Growth

Generally, most people are always of the view that foreign direct investment has a positive impact on economic growth. However, it should be noted that when taking an account for the various average growth performance across sectors, the positive impact of foreign direct investment may not be apparent. This should not be used to wipe out the several benefits that foreign direct investment has on enhancing the economies of various nations. It should be noted that the major economic growth that is brought about by foreign direct investments is often experienced in developing countries.

There are various ways through which foreign direct investment impacts economic growth. It is an effective channel through which technology is transferred from financially stable economies to developing nations. This is because; foreign firms that are looking towards establishing their presence in other countries have to factor in the ideal technological framework that can support their operations. The technological advancements are not only initiated for the benefits of the firms and the sectors that they fall into but generally, the host countries. As a result of this, the host countries also get to use the technology, thus, great benefits that boil down to economic growth.

Through foreign direct investments, multinational companies form partnerships with domestic firms or even stamp Proofreading-Editingtheir presence in the host countries by starting their branches therein. The investments can be made on various sectors depending on the prospects that look appealing to the investors. When this happens, there is going to be significant increase in production levels in the respective industries.  This will further lead to an increase in imports and exports, thereby earning better revenues. These revenues will not only benefit the host country but also the investors since they are also in business.

Another impact of foreign direct investment is that it adds value to human capital. Whenever multinationals are eyeing a particular country for investments, they are always very keen on the workforce. For their operations to move well as required, they need a skilled workforce. However, it is not always easy to find enough skilled human capital in the host country. Thus, they have to go an extra mile to offer on-job training in order to acquire a skilled workforce. In this way, it is in order to say that foreign direct investment creates human capital. The skilled workforce that is crated is both beneficial to the investor and the host country since if later on the firm or multinational decides to switch its operations or cut foreign direct investment, the human capital will remain with the host country. With a skilled workforce, there is always easier and faster to accelerate economic growth.

The impacts of foreign direct investment on economic growth is varied and mainly depends on a number of factors like a country’s national income, human capital, domestic financial development, openness to international trade among others.  However, the general impact is often a positive one.

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