Foreign Direct Investment (FDI) plays a crucial role in international business by promoting economic integration, fostering growth, and enabling the exchange of resources and technology. Here are the key functions of FDI based on international business:
1. Capital Formation
- FDI helps host countries access foreign capital, which can be used for infrastructure development, industrialization, and overall economic growth.
2. Technology Transfer
- Multinational corporations (MNCs) bring advanced technology, innovative processes, and managerial expertise to the host country. This enhances productivity and competitiveness.
3. Market Expansion
- For investing firms, FDI provides opportunities to enter new markets, establish a global presence, and diversify market risks.
4. Employment Generation
- FDI creates jobs in host countries by setting up new businesses, expanding operations, and promoting local entrepreneurship through supply chains.
5. Enhancing Trade
- FDI facilitates international trade by integrating the host country into global supply chains, increasing exports and imports.
6. Economic Growth
- FDI contributes to GDP growth in host countries by improving infrastructure, increasing industrial output, and enhancing service quality.