Foreign Direct Investment for Developing Countries Essay

Foreign Direct Investment for Developing Countries - Essay Example 10) say that FDI is one of the key options for economic growth of developing countries. However, it is not all developing countries that are open to FDIs. The FDI helps these economies in terms of foreign capital in form of direct and also some cases indirect investment. Most of developing countries initially depended on loans from international financial institutions and banks but this started changing in the 80s when international banks started experiencing financial constraints. This forced most developing countries to shift the approach and change their investment policies in such a way that will be attractive to stable forms of foreign capital. The advantage of FDI is that developing countries easily get foreign capital without high risks that can be tagged to the debt. According Marchick and Slaughter (2008, p.2) governments have been reviewing their economic policies as an effort to attract MNCs through FDIs into their countries. It is important to note that FDI is directly affected by multinational companies (MNCs) who are the main participants. With that consideration, then we can easily conclude that factors that affect MNCs also affect FDIs. The capital flow from MNCs is directly injected to FDIs. Most of the times, the MNCs tend to expand their activates to foreign companies for several reasons which include; exploitation and utilization of economies of scales, utilization of particular advantages and at times very unprecedented reasons like just because their main competitors are actively involved related practices. Equally, governments are in competition to attract more FDIs in their nations. They do this by changing and at times compromising some of the key factors in their economic policies. Examples of such factors include corporate taxes, domestic labour market conditions among others. With all these activities surrounding FDI, MNCs have to be very analytical before making investments in such countries. There are determinants which are