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Direct and Indirect Foreign Investments

What are some advantages and disadvantages of direct and indirect foreign investments?

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1. What are some advantages and disadvantages of direct and indirect foreign investments?

Generally, the term "investment" denotes two meaning. The first meaning is direct investment and the second meaning is indirect investment. Direct investment is investment through the mechanism of Foreign Investment Law. While indirect investment is investment by way of buying shares through the stock exchange.


· The direct investments will yield through the multiplier effect income and employment growth in the region
· Special tax advantages that are aimed to attract foreign investments that will not be present in their absence. Basically, the government foregoes receipt of income from duties, and, possibly, other taxes in order to encourage investments. If indeed the region enjoys a comparative advantage then multinational companies will presumably exploit the opportunity and initiate development efforts on their own. http://www.temple.edu/prc/ftz.doc However, some argue that the double taxing diverts direct foreign investments.

Distinct from other transborder financial transactions arising out of the sale of goods, services, knowledge and technology or from the purchase of portfolio assets or of currency and other speculation, FDI involves the very visible presence or participation in an economy of a major, non-national or alien agent. Experience has demonstrated, however, that this foreign agent also brings clear benefits, including:

· The infusion of scarce capital, generating growth and income, often by an effi-cient, productive enterprise.
· The creation of employment, both directly and indirectly.
· The stimulation of positive balance-of-payments effects, including import-replacing domestic production, the potential for expanded exports and often increased export and import activities by both suppliers and customers.
· The acquisition of technology, knowledge, and managerial skills.
· The generation of additional tax revenues.( http://www.pch.gc.ca/progs/ac-ca/progs/rc-tr/progs/dpci-tipd/pubs/cdpc-ctpl/6_e.cfm).

Traditionally, two arguments are commonly advanced to justify foreign ownership re-strictions (potential disadvantages):
· national ownership will lead to different decisions about the type of content produced and distributed than foreign ...

Solution Summary

This solution explains the advantages and disadvantages of direct and indirect foreign investments.