Since 1950, most countries in the world have undergone rapid growth of population. Rapid increase in gross domestic product has grown in accordance with the rapid growth of population as well. In most countries, income per capita has improved too since 1950. An increase in FDI can be attributed to these factors. As tax revenues increase and capital influxes, economic growth improves, leading to increase in FDI. Not only can FDI support a host country’s development, it will also transfer soft skills by means of job vacancies, training, access to R&D resources, and advanced technology.
The locals in the host country can enjoy wider range of job opportunities that the company has provided from the foreign investment. The investing company may relocate their production capacity and machines to a host country. This is still beneficial for the target country especially in the event that it still lacks technological advancement or its technological environment is still under-developed. This is also advantageous as the host country can prevent the products made by the investing company from having to compete against those of the host country. The target country would be able to use the FDI to build new infrastructure as well as other projects, all which may beneficial to boost its own economic growth in the process.
The presence of new companies in a country poses a greater kind of competition for the local companies. This may lead to improved productivity and result in increased efficiency within the host country itself in the process. It is also thought that corporate governance standards in a host country can be improved through the application of policies implemented by a foreign company to its subsidiary. The impact that FDI provides is wide in range and can change the whole structure of a country’s economy altogether.