Which is a possible adverse effect of FDI on a host country's balance-of-payments position?
A) When a foreign subsidiary exports a substantial number of its outputs abroad.
B) When a foreign subsidiary gets a substantial number of its inputs from its host-country.
C) When most of the foreign subsidiary's management team is from the home country.
D) Set against the initial capital inflow that comes with FDI must be the subsequent outflow of income as the foreign subsidiary repatriates earnings to its parent company.
E) the increased competition weakens domestic companies reducing local production and increasing imports

Question

Quizplus · Accepted Answer

When a foreign subsidiary invests in a host country, it brings in an initial capital inflow, which is beneficial for the host country's balance of payments. However, this inflow may be overshadowed by the subsequent outflow of income as the foreign subsidiary repatriates earnings to its parent company. This can have a negative impact on the host country's balance-of-payments position. Therefore, option D is the correct answer. Option A, B, and C do not have any direct impact on the host country's balance-of-payments position. Option E highlights a possible adverse effect of FDI, but it does not relate to the host country's balance-of-payments position.

Which Is a Possible Adverse Effect of FDI on a Host