Foreign Direct Investment

Foreign Direct Investment - Advantages 1. Causes a flow of...

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Advantages 1. Causes a flow of money into the economy which stimulates economic activity 2. Employment will increase 3. Long run aggregate supply will shift outwards 4. Aggregate demand will also shift outwards as investment is a component of aggregate demand 5. It may give domestic producers an incentive to become more efficient 6. The government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it Disadvantages 1. Inflation may increase slightly 2. Domestic firms may suffer if they are relatively uncompetitive 3. If there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are "seeking to attract high value-added services such as research and development (e.g.) biotechnology)" Advantages of free trade Free trade occurs when there are no artificial barriers put in place by governments to restrict the flow of goods and services between trading nations. When trade barriers, such as tariffs and subsidies are put in place, they protect domestic producers from international competition and redirect, rather than create trade flows. i. Increased production Free trade enables countries to specialise in the production of those commodities in which they have a comparative advantage . With specialisation countries are able to take advantage of efficiencies generated from
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This note was uploaded on 01/23/2012 for the course ADMS 1010 taught by Professor Jurkowski during the Fall '09 term at York University.

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Foreign Direct Investment - Advantages 1. Causes a flow of...

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