Q-48 = Critically examine role of foreign investment in economic development of
Pakistan
ROLE OF FOREIGN PRIVATE INVESTMENT
Foreign private investment is very helpful for the economic development of a host
country provided they operate within certain restrictions, which are given below.
1. Limits on profit repatriation should be fixed
2. Foreign investment should have a joint venture with the local partners
3. Foreign investors should export certain proportions of their products.
4. Monopoly control/ anti-cartel laws should be enforced on foreign investors
ADVANTAGES OF FOREIGN PRIVATE INVESTMENT
1. Saving gap is fulfilled for economic growth
2. Foreign capital reduces foreign exchange trade gap
3. Government’s income increases through taxes
4. Modern management, technology and skill is obtained
5. Superior value added goods are produced
DISADVANTAGES OF FOREIGN PRIVATE INVESTMENT
1. Profits and royalties are remitted which increases burden on balance of payment
of Pakistan.
2. Foreign companies having superior products dominate local market therefore
growth of local enterprises suffer a lot.
3. Foreigners established their factories in big cities for want of protection but it
creates economic disparity between rural & urban areas of the country.
4. Foreigners develop friendship with the politician and bureaucrats, they provide
respectable jobs to their sons and relatives and then use their economic power in
influencing government polices to their advantage
5. Foreign companies having large capital and modern technology operate on
monopolistic situation and exploit consumers by charging heavy prices.
6. Stimulate inappropriate consumption patterns through advertising, such as KFC.
Pepsi cola, Walls and Mobile phones.
7. Foreign private investment increases foreign exchange liability by using
imported raw material.