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Foreign Direct Investment - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali
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FAQs on Foreign Direct Investment - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali
| 1. What is foreign direct investment (FDI)? |  |
Ans. Foreign direct investment (FDI) refers to the investment made by a company or individual from one country into a business or project located in another country. It involves the direct ownership or control of the assets in the foreign country, such as establishing a subsidiary, acquiring shares of a foreign company, or setting up a joint venture.
| 2. What are the benefits of foreign direct investment? | |
Ans. Foreign direct investment brings several benefits to both the host country and the investing company. For the host country, FDI can lead to increased employment opportunities, transfer of technology and skills, infrastructure development, and economic growth. It also helps in attracting more investments and creating a favorable business environment. For the investing company, FDI allows access to new markets, resources, and technologies, as well as the potential for higher profits and diversification.
| 3. What are the types of foreign direct investment? | |
Ans. There are two main types of foreign direct investment: horizontal and vertical. Horizontal FDI refers to the investment in the same industry abroad as the one the company operates in domestically. It aims to expand the company's market share or gain competitive advantage. Vertical FDI, on the other hand, involves investing in different stages of the production process, either upstream or downstream. It allows companies to control the supply chain, reduce costs, or access key inputs.
| 4. What factors influence foreign direct investment? | |
Ans. Several factors influence foreign direct investment decisions. These include political stability, economic conditions, legal and regulatory framework, market size and potential, infrastructure, labor availability and cost, tax policies, intellectual property protection, trade barriers, and ease of doing business. Investors also consider factors like the quality of institutions, corruption levels, and cultural compatibility when deciding to invest in a foreign country.
| 5. How does foreign direct investment impact the economy? | |
Ans. Foreign direct investment has a significant impact on the economy of the host country. It can stimulate economic growth by attracting capital, technology, and managerial expertise. FDI often leads to job creation, skill development, and technology transfer, which can enhance productivity and competitiveness. It also contributes to increased trade, export growth, and the development of local industries. However, the extent of these impacts depends on factors such as the sectoral composition of FDI, the quality of institutions, and the level of integration with the local economy.
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Oct 31, 2024 Last updated |
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