by Jesse Vorton

Created on: June 28, 2010   Last Updated: July 09, 2010

Countries find themselves having to intervene in FDI (foreign direct investment) through a multitude means, often doing so to protect the nation’s cultural customs, the eventuality of creating more jobs, as well to protect domestic companies. Nations sometimes enact laws, develop new regulations, and at time will create administrative delays for companies dealing out of foreign countries attempting to expand their business opportunities into the nation in question. Important to note that international FDI has been decreasing globally, and is now a sought out source from many nations, attempting to attract the likes of multinational firm investment. This is increasing tensions between competing countries who are vigorously attempting to bring in new sources of development capital. This result in national competition for investment which has lead to the government needing to intervene, by enacting policies that will encourage or thwart foreign direct investment.

What is a balance of payments? A balance of payments is an accounting system that takes account of all the outflow payments made by a given country, (Canada to the U.S) to organizations in other nations; and all inflow payments coming into the country (U.S to Canada).

Reasons why a government in a host country will intervene

The two main reasons why host nations will make decisions in regards to deterring international companies FDI, is balance-of-payments, and to obtain resources and benefits.

Balance of Payments

Intervening is sometimes the only way to keep their balance of payments under control, and maintained at a favourable level. This is so because, FDI inflows are recorded as an inclusion to the balance of payments, as a country often gets a balance of payments increase when more initial FDI inflows. Further, nations often impose local content requirements on foreign investors coming into the country in question for the purpose of producing a good or service. This enables more local businesses to supply the market; this thus decreases imports and thereby improves the nation’s balance-of-payments. By reducing foreign suppliers in the host country, this increases the likelihood that local suppliers will begin exporting, which by doing so will as well have a positive effect on the host countries balance of payments.

Obtains Resources and Benefits

Governments may intervene in FDI flows as a way to obtain more resources and national benefits, such as (1) increased access to technology,

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