Foreign Direct Investment in the World Economy - Essay Example

The paper "Foreign Direct Investment in the World Economy" is an outstanding example of a term paper on macro and microeconomics.  Foreign Direct Investment (FDI) makes a huge impact on the economic growth of the host country and that has been amply demonstrated in the case of many developing and developed countries in the last 30 years. The paper attempts to explore the FDI trend from the viewpoint of the host and source country.

Benefits to Host 
Hosts country gets benefitted from FDI in several ways as they bring not only capital but also technology and management skills that are equally essential for real economic growth.
The story of South Korea proves that FDI does help the country in the fast track of economic growth. In 1997, many South Korean companies were in deep trouble when the Korean currency depreciated heavily against the US dollar. Many of them were unable to pay back their debts. In such economic turmoil, the government took drastic measures and eliminated a series of restrictions on the foreign direct investment that existed then and gave permission for the takeovers wherever needed.  This made a dramatic impact on the South Korean economy. FDI flows increased up to $9.3 billion in 2000 against just $3 billion in 1997.  Sweden’s Volvo rescued Samsung's unprofitable construction division by buying them at $572 million. Volvo invested an additional sum of $200 million in the old plant to produce excavators and other equipment to serve their global markets. Volvo closed own plant in Sweden and remained fully committed to the Korean plant. By 2002, the plant was in profit exporting almost 68 percent of its production (Hill, p.332).

Employment Benefits                   

             Foreign direct investment creates jobs in the host country. FDI creates direct and indirect employment through many ancillaries and support industries. When Toyota opened an auto unit in France, it created direct and indirect employment for 4000 persons in all (Hill, p. 336).

FDI Helps Even Developed Countries
Not only developing countries but even developed countries are also benefitted by FDI. Jaguar of the UK is one such company where FDI came from India when it's Land Rover brand was struggling hard for survival. It is worth mentioning that the company did turnaround after the takeover from the Tata group. Tata group not only brought capital but also management expertise along with that indeed helped Jaguar to make a profit in the subsequent years (Groom, 2012). 

FDI Knows No Boundaries                                                          
Foreign direct investment goes where there is an opportunity. As such, FDI has no boundaries and biases. That is why the European Investment Bank (EIB) goes to North Africa in Morocco to fund a solar power generation project that will generate 160 MW of electricity in the first phase. It has planned to increase the capacity by 4 times once the first phase project reaches maturity. An investment outlay of EUR 345m has been earmarked for this solar complex going to be the largest in the world of its kind (EIB, 2012).

Benefits of FDI to Home Country
Home countries are also benefitted from the FDI. When Ford formed a joint venture with Mazda and invested in Japan, they could learn about their production systems which helped Ford to replicate back in their own plant in the US (Hill, p. 343). FDI investments bring earnings back in the home country and it is a continuous flow of income every year (Hill, p. 342).

Conclusion        
Thus, it is amply clear that FDI benefits not only to the host country but the home country too. In other words, FDI helps eliminate the poverty of the home and host country both. It brings the welfare of the people in general and the real reason behind this lies in economic cooperation between the nations. FDI brings efficiency in the production and distribution processes using minimal resources. FDI indeed creates a win-win situation for host and home countries both.