Implications Of FDI

Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country. FDI is a major source of capital for many developing countries such as Russia and Zambia. It is usually difficult for these countries to solely rely on their own domestic strengths and capacities alone and therefore FDI is considered necessary for these countries as it contributes to their general economic growth. However FDI can have a huge positive and negative implication to which I will elaborate on in this essay.
Furthermore FDI in Russia and Zambia could have the potential to eliminate there high unemployment rates. In Russia the unemployment rate in 2015 was recorded at 5.3 percent in August of 2015, the same as in July, remaining one of the lowest in Europe. One of the reasons why policy makers in developing countries strive to attract FDI is to create new jobs in their economies. Zambia also has a high unemployment rate of 13.30%. If these developing countries sought to seek FDI then workers would be required and most firms would rely on the recipient country of FDI for workers rather than employ workers from the host country. Therefore FDI …show more content…
Investment in any of the countries requires workers, the employment of these workers means that the unemployment rate has the potential to go down and these workers have the ability to purchase goods and services, the purchasing of goods and services increases demand requiring more workers to keep up with demand, this means more people are paying tax to the government and the multiplier effect continues. However FDI may cause the sever displacement of small organisations and traders. Large companies from developed countries may want to try and monopolies and take over highly profitable sectors. Such foreign companies invest more in machinery and intellectual property than in wages of the local