How Foreign Capital Promotes Growth For Your Country

Helps In Building Capital Equipment

Poor countries are poor because they do not have the infrastructure required to create wealth.

Infrastructure is a very important capital instrumentality for any country.

Roads, ports and electricity ar required if a nation has got to prosper.

Poor nations neither have the funds needed to make such infrastructure nor will anyone need to lend the money to them.

This is as a result of these infrastructure comes need Brobdingnagian direct prices.

They also have a high gestation period. This means that the payback period for the investment is very high making it even more difficult to develop the nation in the absence of foreign aid.

In such cases, foreign investment comes in handy. Consider the case of colonial India and Pakistan. The investment in railways was done by British i.e. foreign capital. However, seven decades after the British have left the nation the railways still heavily contribute to the economic well-being of these nations.

Helps In Transfer of Knowledge

The reason why developing countries ar poor is as a result of they lack in technology and power.

They lack both the equipment as well as the people with specialized skills.

When foreign investment makes its manner in a very nation like this, the technology of the state is additionally developed.

Foreign capital therefore helps in up gradation of people and equipment and makes a nation competitive in the international market.

Balance of Payments

Companies ought to have a balance between what they import and what they export.

Poor countries usually import way more than they export.

As a result, they do not have the foreign exchange to pay for the balance.

In the absence of interchange, companies are forced to go into debt to make these payments.

Foreign direct investment is often aimed at producing goods which will then be exported to other countries.

For instance, Ford has set up a factory in India where it manufactures cars and sells to all countries within the south-east Asian region.

As a result, Indian earns foreign exchange which it can then use to pay for essential imports of oil and other strategic commodities.

Risk Taking Ability

Developing countries tend to have a lot of unused natural resources.

When firms from developed nations established look in these countries, they employ technology which is able to take full advantage of these resources.

The inaccessible and remote areas of the developing nation become way more accessible with the utilization of latest technology.

This is definitely beneficial to the home country.

Helps in Controlling Inflation

Developing countries face severe inflationary bouts when they are developing at a fast pace.

This is as a result of quick development usually needs government expenditure.

Governments sometimes pay cash that they need created via their act powers.

As a result, high volume of government spending leads to high rates of inflation.

However, the inflation solely seeps into the products and services that ar factory-made regionally.

If the products ar foreign from abroad, the producer of those goods faces a totally different cost structure.

Hence, they will not raise the prices based on government spending in the developing countries. Big amount of imports from foreign countries help in controlling the inflationary pressures.

Improves Standard of Living

Increasing foreign investment features a direct positive impact on the quality of living of any country.

Consider the case of China and India.

Both these countries have seen a substantial rise in their commonplace of living when western capital started establishing factories and offices on their soil.

The most immediate impact was the rise in financial gain.

This has lead to increased productivity and higher standard of living for other sectors of the economy as well. There has been a marked rise in the expenditure on education and entrepreneurship has grown by leaps and bounds.

Cities like Shenzhen and Bangalore have fully grown from the mud to become outstanding centers of international trade.

 

The gist of the matter is that foreign capital has been viewed negatively for the past century.

This is because imperialism was the end result of the first wave of foreign investment. The East India Company had started as traders until they enslaved several nations.

One needs to understand that the modern wave of foreign capital is not interested in the enslavement of locals. We live in a connected world wherein exploitation by corporations would lead to an end to their businesses. Hence, in the 21st century, there are considerable advantages to accepting foreign capital and very few disadvantages.