15The Role (Implications)   of Foreign Direct investments   and Multinational   Corporations   in developing countries

Positive roles (implications)

1. They create employment opportunities.  Foreign   investors    set up production    activities    and business   enterprises   like banks, hotels, industries   etc.  which provide   employment    to  the  local population.   This increases the incomes of the people hence better standards of living.
2. They increase efficiency in resource allocation. Foreign   investors   employ efficient   techniques of production which leads to the production   of more goods and services hence economic   growth and development.                                                                                                                                        .
3. They are a source of government revenue through taxation. Foreign   investors   help to widen the tax base in form of taxes imposed on their profits, employment   incomes   and other business activities  created  hence  generating   more  tax revenue  to the     The revenue   realized is used to construct social and economic infrastructure   like hospitals,   roads, schools etc.
4. They increase capital inflow in the country.  Foreign    investors    help   to fill   the   savings-investment   gap in developing   countries   through   inflow of capital   and other resources.    This increases the level of investment   in the country.
5. They help to close the foreign exchange gap. Foreign investors   bring in foreign exchange   by investing in developing   countries.  This increases the country’s   foreign exchange reserves   and its monetary   base.   Such foreign   exchange   is used   to import   capital   and consumer   goods   which cannot be produced locally.
6. They lead to the development of social and economic infrastructure.   Foreign    investors promote the development    of the social and economic infrastructures in form of roads, schools, hotels, hospitals,   financial institutions   etc. and this leads to the development   of the economy.
7. They   promote    technological   development   in   the   country.   Foreign     investors     facilitate technological progress   through   technology   transfer   from developed    to developing    countries.  Local people   learn and adopt the modem   techniques   of production    hence improving   on their efficiency in production.   This leads to the production   of better quality goods and services.
8. They promote the exploitation and utilization of the idle local resources. This helps to improve on the productive capacities in the economy hence economic   growth and development.
9. They reduce the balance of payment problems in the country. This is because foreign investors increase   the production   of goods and services for exports   and for domestic   consumption.    This reduces   on  the  importation    of  goods  and  services   in  the  economy   hence  improved   balance   of payment  position  for the country.
10. They promote industrial development. Foreign   investors   help  to  mobilize   financial   resources which   are  used  for development    of  heavy  industries   like  iron  and  steel  industries,    electrical engineering   etc. Such industries require a lot of capital which is lacking in developing   countries.
11. They encourage competition in the local business activities. This leads to the production    of better quality goods and services at reduced prices hence better standards of living.
12. They accelerate economic growth of the country. This is because   foreign investors widen the production   and economic   activities in the country which increases   output in the economy.
13. They lead to the production of a variety of quality consumer commodities. This widens   the choice of consumers   hence improving their standards of living through utility maximization.
14. They help to create a class of entrepreneurs in the economy. The  private   foreign   investors help  to  train   the  local   individuals    with  the  necessary    managerial  skills  required   .to  operate modem  business  enterprises.   This helps to close the manpower   gap in developing   countries.
15. They promote good international relationships between their countries   of origin   and other countries   where   their business   activities   are extended.   This   enhances   mutual   understandings among countries.