the rate of growth of world trade”.(2) The vast majority of MNCs originate in the United States, Japan, and the EU. These countries are also the main hosts to MNCs, although many of the less developed countries have increased their involvement with FDI. Most of this new investment has been to China and the 'tiger' economies of South-east Asia. Many people have strong opinions about multinational corporations and there involvement in investing in foreign countries.. “International institutions such as the World Bank, IMF, and WTO tend to see MNCs as champions of free trade and mechanisms by which national economies will be forced to open up”.(1) On the other hand many others have expressed concerns about whether the benefits of FDI are as great as it has been said to be, or whether they exist at all. So what are the benefits and costs of FDI.The below areas will be focused on when dealing with the benefits and costs of foreign direct investment and its effects on host countries. Including effects on a country's growth rate, tax revenues created for host governments, a spill over effect of capital (knowledge, technology, expertise) changes in consumption patterns, and an increase in economic independence. “A country's growth rate is strongly influenced by past investment levels. Therefore, if the level of investment in a country is increased, future output will be higher.”(3) However, FDI may not raise the level of output in the host country. Because MNCs aim to maximize profits as well as the fact that many investors may be attracted to the same sector for investment. Predatory pricing, combined with large grants and subsidies from host governments, allow multinationals to offer lower prices and higher wages than indigenous competitors. As a result, MNCs often displace existing companies, or prevent the emergence of new competitors. By buying intermediate products from overseas associates, MNCs ...
