What are the effects of FDI inflows in case of Bangladesh

There are some positive and negative effects of Foreign Direct Investments. These are:-

Possible positive effects:

1.    Foreign direct investment (FDI) provides capital which is usually missing in the target country

2.   Long term capital is suitable for economic development

3.   Foreign investors are able to finance their investments projects better and often cheaper

4.   Foreign corporations create new workplaces

5.   FDI bring new technologies that are usually not available in the target country. There is empirical evidence that there are spill-over effects as the new technologies usually spread beyond the foreign corporations

6.   Foreign corporations provide better access to foreign markets Ex. Foreign corporations can provide useful contacts even for their domestic subcontractors

7.   Foreign corporations bring new know-how and managerial skills into the target country Again, there is a spill-over effects – as people leave the corporations they leave with the knowledge and know-how they accumulated

8.   Foreign corporations can help to change the economic structure of the target country

9.   With a good economic strategy governments can attract companies from promising and innovative sectors

Possible Negative effects:

1.    Foreign corporations may buy a local company in order to shut it down (and gain monopoly for example)

2.   “Crowding out” effect: We can see this effect if the foreign corporations target the domestic market and domestic corporations are not able to compete with these corporations

3.   Foreign corporations may cut working positions (privatization deals or M&A transactions)

4.   Foreign corporations have a tendency to use their usual suppliers which can lead to increased imports (no problem if the production is export driven)

5.   Repatriation of the profits can be stressful on the balance of payments

6.   The high growth of wages in foreign corporations can influence a similar growth in the domestic corporations which are not able to cover this growth with the growth of productivity- The result is the decreasing competitiveness of domestic companies.

7.   Missing tax revenues- If the foreign corporations receive tax holidays or similar provisions

8.   The emergence of a dual economy-The economy will contain a developed foreign sector and an underdeveloped domestic sector.