-
Essay / Foreign Direct Investment Essay - 803
The reason is to benefit from the exchange goods and services produced in the area of specialization of a country which has the comparative advantage in each of the countries itself . This specialization will improve the standard of living of a country. While foreign direct investment is considered as the main element of industrial development and economic growth of a host country. According to Rosa Portela Forte, “foreign direct investment (FDI) influences the economic growth of the host country through the transfer of new technologies, the training of human resources, integration into global markets, the increase in competition and the development and reorganization of businesses”. In a previous study on economic activity between countries and international trade, there are two aspects of possibility of a chain between FDI and trade. First, FDI is a substitute or complement to trade. Second, FDI becomes the cause of trade or vice versa. Mundell (1957) stated that trade between countries and the movement factor of national expenditure, including FDI, act as a substitute. On the macroeconomic level, the overall level of FDI will affect the economy of the recipient country in many cases, including production (output), employment, unemployment level, income, prices, exports and imports, economic growth, balance of payments, and general