The Main Challenges Of FDI And Economic Development

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The purpose of this essay is to demonstrate what are the main challenges of assessing the impact of FDI on economic development. In other words, we would like to comprehend why is it tough to assess that there is a positive relationship between FDI and economic development. While it is not necessary to recall the definition of an FDI and its different elements, it is worth defining economic development which is slightly different from economic growth. Indeed, the economic development includes economic growth but it is rather a process than a data. It contains components such as inequalities and poverty drop, public welfare, steady institutions. On the other hand, economic growth exclusively refers to the evolution of national income. As a matter of fact, theoretically, FDI is seen as a key factor …show more content…

Natural resources highlight this claim. Indeed, 80% of total FDI in Ecuador are made in the oil industry. However, these FDIs have not had any positive consequences on economic development in Ecuador. In fact, they have less employment effect, there are fewer technological spill-over because MNCs do not have the need to buy a significant amount of inputs from the host country. However, again, it depends on the company’s will. So, in this profit-maximizing case, FDIs replace domestic investments and reduce market share. Thus, we have demonstrated that profit-maximization and FDI made in natural resources are genuine challenges of assessing the impact of FDI on economic development. In the cases we mentioned, thanks to MNCs, FDIs don’t lead to economic development and on the contrary, they are a brake on growth. Now, it would be interesting to understand which challenges host countries are facing inside their own systems. This is the reason why we are going to study challenges such as political risks and terrorism, public investments and economic

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