The stability of FDI even during the crisis period led many developing countries to favour FDI over other forms of Short-term inflows.
The Foreign Countries Investors are willing to invest in Developing countries because it allows them to seek highest returns. It also reduces the risk faced by the owner of capital by allowing them to diversify their investment.
The easy movement of capital flows in order to seek high returns also contributes to Developing countries adopting a very high and competitive corporate governance standards, efficient legal institutions and integrated Financial markets.
The pressure to attract FDI also improves the functioning of Governments in Developing Countries. The Governments in Developing Countries restricts themselves from pursuing bad economic policies due to the fear of reversal of Foreign Capital.
FDI allows transfer of technologies that cannot be achieved through other forms of short-term financial investments like FPIs.
FDI recipient’s countries also gain in the form of increased employment opportunities due to the investment made by Foreign Firms.
The Governments of the host countries also stands to gain due to increase in their corporate tax revenues.
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