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Effect of Fdi by Mncs in Developing Countries

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Effects of FDI by MNCs in Developing Countries

What are Multinational corporations? What motives do they have for foreign direct investment? This paper explores these questions and seeks to find explanations by exploring key economic theories. The impact of FDI on developing nations is discussed with analysis and evaluation of the positive and negative effects. The findings of this essay are that FDI is neither entirely good nor bad for a country. Instead its effects vary and depend on a number of factors. Whilst firms have different strategies and objectives, the aim is ultimately to gain profits. In some instances this comes at the detriment of the welfare in the host nations, but it can also have benefits for these developing countries. |

Introduction
Foreign direct investment (FDI) has played an important role in developing countries with these nations receiving an increasing share of world FDI inflows (see Fig.1 below). From 1985 to 1990, the FDI inflow into developing nations was 17.4% of the total global flow. This increased to 31-40% in the four years leading up to the financial crisis (Hill, 2014). FDI acts as a major contributor to capital formation in developing countries and can promote growth and sustainable development. However, there are many challenges that the host country can face when dealing with multinational corporations (MNCs). By looking at key issues and analysing empirical evidence, the positive and negative effects that foreign direct investment can have on developing countries will be evaluated.
Fig. 1 FDI Global inflows by groups of economies

Multinational Corporations and Their Motives for FDI
MNCs as, “enterprises, whether they are of public, mixed or private ownership, that own or control production, distribution, services or other facilities outside the country in which they are based”. (ILO). The managerial...

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