- causes a flow of money into the economy which stimulates economic activity
- employment will increase
- long run aggregate supply will shift outwards
- aggregate demand will also shift outwards as investment is a component of aggregate demand
- it may give domestic producers an incentive to become more efficient
- the government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it
Disadvantages
- inflation may increase slightly
- domestic firms may suffer if they are relatively uncompetitive
- if there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are "seeking to attract high value-added services such as research and development (e.g.) biotechnology)"
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