To what extent would multinational investment of FDI into Eastern Europe and LEDCs likely to help or harm the country development?
FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of domestic territory of the investor.
FDI is often attracted by the flexible labour laws, low levels of corporation tax and regulations.
FDI is mostly seen as one of the ways that countries can benefit from globalisation and economic growth, therefore reducing their levels of poverty and closing the gap in income distribution.
Most of the LEDCs are trying to attract FDI because an increase in FDI is likely to result in an increase in levels of domestic employment, and with that increases in the levels of income received by employees. As income increases this should make consumption increase, which will have a multiplayer effect on national income trough increase in spending.
BY having the level of consumption already high firms will rise the level of output which will increase investment on capital goods, and also reduce unemployment because more people will be needed. All of this will lead to an increase in Aggregate Demand of the economy because investment and consumption are components of AD.
This will shift the AD to right and bring economic growth. Also by reducing unemployment government will receive more money form taxes and will safe money because there will be less people claming benefits. This will increase government spending on schools and hospitals which are keen for LEDCs. However If the economy is working at full capacity which is not usual for LEDCs, this economic growth that comes from FDI may lead to demand pull inflation.
Another huge advantage of FDI is that it increases competition in the countries and brings new technologies to the LEDCs. More competition will make other firms work more productively efficient. This will lead to a drop in price of goods and...