What are the advantages and disadvantages of foreign direct investments?

advantages

- causes a flow of money into the economy which stimulates economic activity

- employment will increase

- long run aggregate supply will shift outwards

- aggregate demand will also shift outwards as investment is a component of aggregate demand

- it may give domestic producers an incentive to become more efficient

- the government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it

Disadvantages

- inflation may increase slightly

- domestic firms may suffer if they are relatively uncompetitive

- if there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are "seeking to attract high value-added services such as research and development (e.g.) biotechnology)"A