FDI

Foreign direct investment combines both the aspects of international trade in goods and services and also the international financial flows, and is a phenomena more complex than either of these. As its name suggests, FDI first involves ownership of the assets of a firm: foreign direct investment is defined as the acquisition of 10% or more of the assets of a foreign enterprise. FDI involves the choice of a host country for these assets. The decision to invest depends on various conditions such as cost, professional access to local market, trade restrictions and other policies in the host country. FDI also involves the decision making activities of which to keep internal to a firm, and which to keep external: only the activities internal to a firm will be included in FDI, while other activities can be pursued by arms-length transactions between unrelated firms. A major factor of why companies look abroad for investment purposes is that domestic markets are becoming saturated and the rate of growth in these markets is slow. In order to survive companies expand internationally to increase their potential.
Foreign Direct Investment has its own Pros and Cons, I would first like to start with the Pros related to Foreign Direct Investment firstly, the country which attracts FDI as well as the country that performs FDI are both at major benefits like both are exposed to new technology and growth in their income. Secondly, direct employment as well as secondary employment is available for the people in the country where FDI takes place. Thirdly, there is reduction in imports and a growth in exports in country attracting FDI. Finally, the country attracting FDI is benefitted in terms of technology spillovers, training and competition. The Cons related to FDI are that the country attracting FDI may become a victim of dumping. FDI involves many risks like currency fluctuations, inflation risks, interest rate risks, etc. FDI can result into excess flow of foreign currency in the country attracting FDI. FDI does not translate automatically into the net foreign exchange inflows.