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xchange. They note, for example, that key technology is tightly controlled by the MNE, and that the important jobs in the foreign subsidiaries of the MNEs go to the home country nationals rather than citizens of the host country. Due to this reason, according to the radical view, FDI by MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment, jobs, and technology. Thus, according to the extreme version of this view, no country should ever permit foreign corporations to undertake FDI because they can never be instruments of economic development, only of economic domination. Where MNEs already exists in a country, they should be immediately nationalized.

 

The Free Market View

 

The free market view traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo. The free market view argues that international production should be distributed among countries according to the theory of comparative advantage. That is countries should specialize in the production of goods and services that they can produce most efficiently. Within this framework, the MNE is seen as an instrument for dispersing the production of goods and services to those locations around the globe where they can be produced most efficiently. Viewed this way, FDI by the MNE is a way to increase the overall efficiency of the world economy.

 

Pragmatic Nationalism

 

In practice, many countries have adopted neither the radical policy nor a free market policy towards the FDI, but instead a policy that can best be described as pragmatic nationalism. The pragmatic nationalistic view postulates that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology and jobs but those benefits come at a cost. When products resulting from an investment are produced by a foreign company rather than a domestic company, the profits from the investment go abroad. Many countries are also concerned that a foreign-owned manufacturing plant may import many components from its home country, which has a negative implication for the host country’s balance of payment position.

 

Shifting Ideology

 

Recent years have seen a marked decline in the number of countries that adhere to a radical ideology. Although no countries have adopted pure free market policy stance, an increasing number of countries are gravitating toward the free market end of the spectrum and have liberalized their foreign investment regime.

 

What are the Cost and BenefitS of FDI to a country?

 

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