A foreign direct investment (FDI) is when most of a company’s assets are located in one country. Still, the firm has a minority shareholder (usually a parent) based in another country. Post-World War II studies analyzing the growth in foreign investment have highlighted the role that U.S. multinationals play in all industries of global production.

Because of this, the first theoretical discussions focused on the business behavior of enterprises that were part of industries. An eclectic approach to explaining foreign direct investment FDI dynamics was required because of the rise in foreign direct investment FDI from Japan and the newly industrializing nations and development in foreign direct investment FDI in service industries. Studies on foreign direct investment point to locations where investment is occurring and how it affects the economy and new and existing technologies, employment, competitiveness, and trade.

Can Foreign Investment affect the hosting country?

Following a study of the empirical evidence, the authors conclude that foreign direct investment may enhance economic development by improving productivity growth and exports in the host countries of multinational corporations. However, when we examine specific cases, we see a strong link between foreign multinational corporations and their host economies in some industries and countries. To increase the number of businesses in the host country market, large multinational corporations first expand their presence in industries where obstacles to entry and concentration are high.

Overall, the possible market concentration could arise as a result of these corporations participating in the market. However, business efficiency may improve, especially if trade protection does not provide a relaxing lifestyle for the multinational subsidiary. This is true to some extent, but it should be noted that much of the available evidence deals with how multinationals enter industries in the host countries, rather than their location as dynamic characteristics of their relationship to competition in the host country markets.

Many studies look at the effects of transnational countries (TNCs) on developed countries. They do not consider the evidence thattransnational countries TNCs may replace local production and put developing enterprises out of business, resulting in fewer job opportunities.