4.14 Encouraging and discouraging FDI
In the previous sections on costs and benefits to the host and home countries, we have seen how benefits and costs are in a sort of reciprocal balance - a benefit to a host country is very likely a cost to the home country and vice versa. In a similar way, there are good reasons for governments in both host and home countries to either encourage or restrict FDI - inward or outward.
The text in Hill (2005) is straightforward and needs no embellishment. Read it now, and then see if Table 4.3 makes sense to you.
In your text
Hill 2005, Chapter 7, pp. 254-257.
Activity 4.6
Think about the following statement and write three points for and against its premise:
Australian firms should not be investing 'off-shore' when there is a need to create jobs at home.
Table 4.3 Means of encouraging and restricting FDI
|
Encouraging outward FDI |
Restricting outward FDI |
Home country |
Government insurance schemes against risk Elimination of double taxation Persuading the host country to relax restrictions on FDI |
Limit capital outflow by exchange controls to protect BOP Impose taxes on outward FDI to encourage investment at home Impose political restrictions (for example, no US investment in South Africa as protest against apartheid) |
Host country |
Incentives to invest via: tax concessions low interest loans cash subsidies spending on infrastructure |
Limits to ownership Requirement for joint ventures Performance requirements |
|
Encouraging inward FDI |
Restricting inwardFDI |
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