NEGATIVE AND POSITIVE

EFFECTS OF FOREIGN DIRECT

INVESTMENT

Asta Žilinskė
Kaunas University of Technology, Lithuania, namai@elektra.lt
 ABSTRACT

The attraction of foreign direct investments (FDI) is often underlined as a precondition for a successful economic venue
by most governments of less developed countries. Strategists in high developed countries seem to be more cautious.
The aim of the paper is to represent a theoretical framework for measuring economic and welfare effects of incoming
FDI.
The objective of the paper is to present and critically evaluate different theoretical approaches to FDI and their
economic impacts. The conclusions of the paper are that the effects of FDI can be both positive and negative. They
depend on type of FDI (greenfield FDI has more positive externalities then M&A actions), sector, scale, duration,
location of business, density of local firms in the sector and many other secondary effects. Rather than proposing
narrowly defined pro-FDI policies, attractive terms to investors should be seen as part of a country’s overall industrial
policy and be available on equal terms to all investors, foreign as well as domestic. Creating a theoretical framework for
better understanding the impacts of FDI this paper might contribute establishing more realistic approach when
attracting the foreign direct investment to domestic markets.
 INTRODUCTION

Two main types of international capital movement can be distinguished. First is international borrowing and lending which can
be seen as intertemporal trade. Country, abundant with capital, exports future consumption at a price of interest rate. Borrowing
country imports current consumption at the same price (Krugman, Obstfeld, 1994). The other part of international capital
movement takes a different form, that of foreign direct investment. In most common sense, foreign investment is international
capital flows in which a firm in one country creates or expands a subsidiary in another. To put it in other words, it is a measure
of foreign ownership of productive assets, such as factories, mines and land.Foreign investors can reduce employment by
dismissing local workers, by crowding out local businesses that cannot compete with multinationals; technology transfers may
not occur if the degree of market integration is insufficient; positive capital flows often turn to negative if investors use cheep
local raw materials and resources and sell expensive final goods. In the years of booming economy, domestic producers in
advanced economies are strong enough not to be forced out of business by foreign competitors. The effects of FDI became more
positive. Enhanced competition, knowledge and technology spillovers, financial stability of incoming investors can bring
externalities that are more positive.
Therefore, the article analyses different approaches towards this particular form of international capital movement, namely
foreign direct investment.
 LITERATURE REVIEW
The Economic effects of Foreign Direct Investment

FDI brings in dollars into an economy; this raises the demand for labor, which can cause a rise in wages in the economy. It
helps in the expansion of the economy required for revenue growth of local governments so that they can raise their citizen
directed programs. The demand for a local currency can boost its purchasing power like seen in China, so that wealth of
citizen doesn’t erode in high frequency, that is a person’s labor doesn’t go unrewarded as time progress. The adverse
effects are severe. This leads to uncontrolled wealth creation, which destabilizes the peaceful fabric of society. The reason
for this is the myopic leaders who lack perception and experience of the West, blindly believe what they do has only
relevance in the natural realm.
Secondly, Due to FDI, the home country is mainly affected by capital and employment. Suppose a country ‘A’ decides to
invest in country ‘B,’ using it’s capital and technology; there will be an addition of financial position to the host country
than the home country. Even in the future, if the country ‘A’ wants to make any advancement, much focus will be given to
the company in the country ‘B’ and implement changes. As a result, the production in the home country decreases and it
sometimes results in shutting down all its operations and completely concentrate on the host country. This severely affects
the home country’s economy and employment.
 CONCLUSION

In conclusion, FDI will increase investment in the economy, leading to an increase in income and
employment. While it is a direct benefit for the country, sometimes it is apprehended that the foreign
investors will exploit a country’s natural resources and offer less work as such industries are capital
incentive in nature. Besides, the displacement of the population is a significant cause of social unrest.
Thus sometimes, the loss due to FDI will be more than the gain. It is advisable to make a cost-benefit
analysis before making such an investment in the economy.
Strong economic rationale must lay behind the incentives to attract the FDI, as the economic impact of
foreign direct investment is not always positive. The impact of FDI is dependent of what form it takes.
This includes the type of FDI, sector, scale, duration, location of business, density of local firms in the
sector and many other secondary effects. Greenfield FDI has more positive externalities; M&A proved to
have little positive and often negative effects to host economies.
E-BANKING : CHALLENGES
AND OPPORTUNITIES IN
INDIA
N. Jamaluddin
 ABSTRACT

India is still in the early stages of E Banking growth and development.

Competition and changes in technology and lifestyle in the last 10 years
have changed the face of Banking. The changes that have taken place
impose on banks tough standards of competition and compliance. The
issue here is in the scheme of E-Banking. E Banking is likely to bring a
host opportunities as well as unprecedented risks to the fundamental
nature of Banking in India. The concept of Scope of E Banking is still
evolving several initiatives taken by Government of India as well as
Country’s Central Bank, the Reserve Bank of India have facilitated the
development of E-Banking in India.
This paper aims to present the E-Banking challenges and opportunities
in India.
 INTRODUCTION

E-Banking, also known as online baking or virtual banking or internet banking is a

system which enables banking transactions like transfer of funds, payment of loans and
EMIs, deposit and withdrawal of cash virtually with the help of internet. It is one among
the extended features which banking institutions provide, in addition to traditional
banking. E- Banking is the most used feature by the citizens of India after the effect of
demonetization. This feature is assumed to be one of the most flexible, adaptable and
secure ways of transacting among the users/customers to bank. However, it depends on
the trust that an individual has on the bank he/she is operating with.
STRUCTURE OF INDIAN BANKING
SECTOR

Banking Industry in India functions under the sunshade of Reserve Bank of India – the
regulatory, central bank. Banking Industry mainly consists of: 
• Commercial Banks • Co-operative Banks 
The commercial banking structure in India consists of: Scheduled Commercial Banks
Unscheduled Bank. Scheduled commercial Banks constitute those banks which have
been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. For
the purpose of assessment of performance of banks, the Reserve Bank of
India categorise them as public sector banks, old private sector banks, new private
sector banks and foreign banks.
 CHALLENGES & OPPORTUNITIES OF
E-BANKING

CHALLENGES OPPORTUNITIES

• Low Broadband Internet Penetration • Increasing Internet Users & Computer Literacy
• Banks’ Ambivalent Commitment Levels • Initiatives Taken By Government Agencies For
• Customers’ Preference for Traditional Branches Financial Literacy
• Fear of Online Threats/Scams • Competitive Advantage
• Impersonal
• Difficult for first timers
• Security fraud
• Regulation and Legalities
• Digital and Financial Divide
• Reputation
 CONCLUSION

The e-banking revolution has fundamentally changed the business of banking by scaling
borders and bringing about new opportunities. In India also, it has strongly impacted the
strategic business considerationsfor banks by significantly cutting down costs of delivery
and transactions. Compared to developed countries, developing countries face many
impediments that affect the successful implementation of e-banking initiatives. In this
paper, we have identified some such impediments in the Indian context. Thus, all the
channels of banking will co-exist with the E-banking facilities. Right now with low and
lack of adequate security, infrastructure and internet penetration, it is significant to take
necessary actions to enhance E-banking..