Evaluating the Overall Effectiveness of FDI Competition

The issue of the effectiveness of open competition for foreign direct investment is generally overshadowed by the much larger question about the impact of FDI on economic growth and development. On the positive side, FDI has the potential to bring employment, capital, technology and knowledge to a country. It can also increase income, foreign exchange, and stimulate domestic investment. Moreover, so called spill-over effects can raise productivity of local firms, lower the cost of R&D and innovation, stimulate the establishment of local supplier networks, and generally facilitate an increased integration in global markets. On the negative side, FDI is associated with the risk of lowered domestic savings and investment, the crowding-out of local firms in capital markets, distorted competition, diminished regulatory standards, and the absence of expected spillover effects.