FDI is an economic system that is highly beneficial for the investor and the recipient. The advantage of this system is the fact that is enables money to go to any corner of the world and grow. The prospects for growth are high regardless of the place of investment. This is because investors do not care about the destination’s government, religion or culture. Their only concern is whether it is profitable or not. Listed below are some further advantages of this system.
Competitive Advantage
Since the system influences well run businesses regardless of the destination’s cultural preference, it results in competitive advantage for the investor. It reduces the level, influence and effects of various external factors politics, bribery and cronyism. Therefore, one can be assured that the money gets spreads evenly all around the world and not just in specific countries. This enables all countries to develop economically regardless of their financial status.
Reduced Risks
The benefits you experience will changes with your choice of investment. There are different types of foreign direct investment in the market and each has its own advantages. One of the most beneficial types is the individual investment. This is when you invest your money alone without the support of any person or organization. Since you are diversifying the capital into various possible destinations, the risk of getting bankrupt is very low.
The Recipient
Regardless of the types of foreign direct investment, the recipient country will definitely benefit from this system. This is because a significant amount of cash is coming into their country on a continuous basis. This reduces a lot of pressure off the government since it is a very inexpensive way of enhancing the economic condition of the country. These investments allow these countries to develop their services, especially in terms of management and technology in order to attract more investors to be interested in their country.
Hot Money
The creation of ‘Hot Money’ often creates a volatile situation. This is when an asset bubble is created within the destination due to increasing number of short term investments. This enables the country to experience a great economic surge within a very short period of time. This situation can result in enhanced image and lot of positive publicity for the destination as well. This boom-bust situation is often beneficial, but do know that it can ruin a regime under negative circumstances too.
However, one must also understand that this system has its downfalls as well. For example, the recipient country can create an economic dependency on such investors and thereby lose interests in local productions.