effects on home country

Question 1

upskilling (positive)

Answer 1

because of less demand for unskilled labour, people are encouraged to seek education to ensure they can be employed.

As a result they have greater income

Question 2

increased employment (positive)

Answer 2

more jobs are created when foreign subsidiary creates demand for home-country exports

Question 3

increase in skills (positive)

Answer 3

home companies can learn valuable skills from exposure to foreign markets such as superior management techniques.

These can be transferred back to the home country, contributing to economic growth

Question 4

unskilled labour (negative)

Answer 4

• low cost of unskilled labour in other countries can cause unemployment in the home country
• wage rate in unskilled workers in many advanced countries has decreased significantly over the years because of competition from other countries.

Question 5

balance of payments (negative)

Answer 5

• capital account can suffer from the initial capital outflow to finance the FDI (normally offset by future profits).
  Means the business is paying less in taxation as its profits are being reduced by the increase in spending
• the current account suffers if the objective of the home market from a low-cost production location as the profit will be made abroad and not in the home country