Qn. 1. What are the costs and benefits of FDI inflows for a host country such as Argentina?
Foreign direct investment (FDI) is the capital investment in a particular business that operates in a foreign country. There are both advantages and disadvantages to a country that allows FDI inflow into their economy. One of the benefits is that the host country earns revenues as a result of the payment of import tariffs. The second advantage is that the foreign investors are likely to come with improved technology, better management and bigger market hence increasing production of the country. The third merit of inflow of FDI is that with the new venture from foreign companies, the local businesses will benefit from an increased market for supplies to the enterprise, more jobs are created, and more capital is input into the economy.
One of the significant costs of allowing FDI inflows is the heightened competition, which may kill the local companies since the foreign companies can afford to sell their products at a lower price. Another disadvantage of FDI inflow is the prioritization of profits rather than providing goods and service for the betterment of the economy.
Firms that have invested in foreign lands are not likely to act in the best interest of the host economy. When companies such as Repsol, which is Spanish-owned invest in another economy, such as Argentina, the priority is not the host country interests but the interests of the business. Despite the fact that countries investing in a market should ensure that their operations take best interests of the local economy seriously, the interests of the host nation are most likely to come third after the interests of the business and those of the parent country.
