Question

Explain the relationship between Foreign Direct Investment and economic development.

Answer 1

Foreign Direct Investment (FDI) and Trade:

• FDI is an important factor in the global economy.
• Foreign trade and FDI are closely related. In developing countries like India
• FDI in the natural resource sector, including plantations, increases trade volume.
• Foreign production by FDI is useful to substitute foreign trade.
• FDI is also influenced by the income generated from the trade and regional integration schemes.
• FDI is helpful to accelerate economic growth by facilitating essential imports needed for carrying out development programs like capital goods, technical know-how, raw materials and other inputs, and even scarce consumer goods.
• FDI may be required to fill the trade gap.
• FDI is encouraged by the factors such as foreign exchange shortage, desire to create employment, and acceleration of the pace of economic development.
• Many developing countries strongly prefer foreign investment to imports.
• However, the real impact of FDI on different sections of an economy.