Is Foreign Investment Good or Bad for USA - Research Paper Example

Due to rapid growth in FDIs all around the world, much work has been done on determining the effects of FDIs on USA economy. There have been increasing concerns about these foreign investments and these have been criticized on many grounds by the critics as they believe there are many disadvantages of these investments like reduction in employment in USA, reduced or inhibited technological advancements, increased trade deficits. Some even argued that increasing presence globally can be a threat to national security and might make the country compromise on national sovereignty.

On the other hand many discusses about the advantage that USA has obtained from these investments which mainly revolves around the general presumption of benefits and favors of free markets. (Graham, Edward M, and Paul R. Krugman) Foreign investments can be both inwards and outwards. It’s a common trend all around the world that the countries which owns cheap production facilities are the best for FDIs, since USA is a country where operating a production facility is fairly expensive when compared to countries like China, India, Brazil etc.

the economy of USA is usually built upon the outwards FDIs. Being the host and home country both receiving and making foreign investments, USA faces benefits and disadvantages both. However since USA mainly focus on outward FDIs due to presence of many owned MNCs in USA; this paper will mainly focus on the outwards foreign investments made by USA in foreign countries. Inward Foreign Investments in USA: USA has been a focus of few MNCs from emerging nations due to its high technological advancements and high standard of living.

Some reasons to allow FDIs to enter US economy can be relating to the capability of the country to produce certain goods. Modern technology is primarily needed by the country and hence FDI can prove to be beneficial when it comes to it. The capability of the country to produce certain goods may depend upon the availability of the funds and the expertise that is available in that particular country. FDI in particular can be helpful in these situations as it can provide the benefits to the country.

If the United States invites different multinational corporations, it will be able to grasp upon the required sources so as to produce the necessary goods that can improve its economy. This can also benefit the country in terms of the realization of external economies. In the modern language of economics this benefit is referred to as ‘spillovers’. This can prove to be one of the most advantageous side of FDI in the United States. Moreover FDI can also prove to increase the existence of competition in the market and hence the existing companies would strive further to attain a better position in the market (Gonclaves, R; Magnus, B).

Outward Foreign Investments in USA: The MNCs from USA have greatly benefited from the outward investments in other foreign countries. Location primarily can have an effect on the economy of the country in two ways. It can help the company to differentiate or vary its product according to the demand of the consumers with respect to the price and it can also help to lower the cost of value