Sample Solution

The influx of foreign direct investment (FDI) into a host country can have both positive and negative economic impacts depending on the nature of the investment. On one hand, FDI brings new capital to a country that can be used to create jobs, increase wages and improve infrastructure. This often translates into increased standards of living for local populations. Additionally, FDI may also lead to technology transfers between countries as well as an improved business environment that promotes competition and spurs innovation.

On the other hand, FDI can have some negative effects such as displacement of domestic capital or labor markets due to its comparative advantage over existing firms in the host country. Subsidies from multinational corporations based outside the host country may result in unfair advantages over local competitors, creating an uneven playing field. It is also possible for foreign investors to avoid paying taxes by setting up operations in countries with lower corporate tax rates than their own home nation which could negatively impact government revenue streams needed for public services like health care or education programs. Lastly, large scale investments by foreign companies could result in environmental degradation if proper regulations are not implemented or enforced.