Essay on the Government Intervention or Barriers to FDI

Foreign, Direct Investment (FDI) is the edifice of the economic globalisation in the present century. However, often host countries government imposes constraints on MNCs activities of inward investment. This may cause disincentive effect on the plan of globalisation. Such disincentives to international investment are:

1. Taxation

2. Disclosure Requirements

3. Technology Transfer Requirements

4. Restrictions on Entry and Ownership

5. Performance standards

Taxation.

Often MHCs pay a higher overall rate of taxation due to overlapping fiscal jurisdictions of parent country and host country.

Disclosure Requirements.

Host country government regulations may compel disclosure of confidential operations of the MHC, which may be commerically damaging.

Technology Transfer Requirement.

When a host country insists on technology transfer requirement the motive of internalisation is deterred.

Restrictions on Entry and Ownership.

FDI may not be permitted by the host country in core industrial sector or industrial of strategic importance. For example, defence goods industries in the country.

Performance Standards.

The government intervention in this regard may be in terms of its insistence on employment of its local/nation people export quotas requirement and so on.