Page 95 - Azerbaijan State University of Economics

Orkhan Dadashov: The Effect of Foreign Direct Investment on Azerbaijan’s Non-Oil GDP

The investor may also transfer technology, expertise, and other resources to the
foreign enterprise, with the aim of increasing its competitiveness and generating
profits. FDI is often seen as a way to expand business opportunities and access new
markets and can be beneficial for both the investor and the host country, as it can
promote economic growth, job creation, and technological development.

The Benefits And Potential Drawbacks of Foreign Direct İnvestment For Developing
Countries
FDI can bring several benefits to developing countries, but it can also have some
potential drawbacks. Here are some of the benefits and potential drawbacks of FDI
for developing countries: (Loungani & Razin, 2001)

Benefits:

• Job Creation: FDI can lead to the creation of new jobs in the host country. This
can help reduce unemployment and poverty, which are significant challenges in
many developing countries.

• Technology Transfer: FDI can bring new technologies, production processes, and
management practices to the host country. The technologies that are transferred to
developing countries in connection with foreign direct investment tend to be more
modern, and environmentally “cleaner”, than what is locally available. (The
Organisation for Economic Co-operation and Development, 2002). This can help
improve productivity and efficiency in local industries, which can contribute to
economic growth.

• Access to Capital: FDI can provide developing countries with access to external
sources of capital, which can be used to finance investment in infrastructure,
education, and other areas that are important for economic development.

• Market Access: FDI can help developing countries access new markets, both
domestic and international, which can help promote exports and economic growth.
(Fugazza & Trentini, 2014)

• Knowledge Transfer: FDI can also bring new knowledge and skills to the host
country, which can contribute to human capital development and enhance the local
workforce.
Potential drawbacks:

• Dependency: FDI can create a dependency on foreign capital and technology,
which can make developing countries vulnerable to external shocks and
fluctuations in global capital markets.

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