Populist politicians sometimes claim that foreign companies operating in home country rob this country of few things:
- Profits or money being drained abroad
- Capital drain
- Tax money
Regarding money, in my understanding the currency would be exchanged for foreign investor's currency at some point. I'm not sure if it works the same way with profits. Populists claim that profits should be reinvested in home country.
Regarding capital drain, unfortunately it must be sold abroad for easy financing. A country can finance itself only through debt if it doesn't want to export capital, and that would be limiting.
There are many grievances that companies book their profits in tax havens such as Ireland. For me it is another argument for rolling back Income Tax and focusing on taxes such as VAT or Digital taxes.
Is there any research that shows a bad side of FDI, especially for countries classified as middle-income?
Is there any evidence of profit/capital drainage as a result of FDI?
byu/Frost-eee inAskEconomics
Posted by Frost-eee