Which of the following are possible negative impacts of FDI on domestic firms in host countries?

(A) Market monopoly

(B) Technology dependence

(C) Increased competition

(D) Profit outflow

Choose the correct answer from the options given below:

Correct option is C

FDI can negatively impact domestic firms by creating market monopolies, fostering technology dependence, and leading to profit outflows as foreign companies repatriate earnings to their home countries.
Information Booster:
· Market monopoly: Large foreign firms may dominate local industries, reducing domestic competition.
· Technology dependence: Local firms may rely on foreign technology without developing their own capabilities.
· Profit outflow: Earnings from FDI investments often return to the investor’s home country, reducing reinvestment in the host nation.
· Increased competition (not included in the correct answer) can be beneficial by pushing domestic firms to innovate.
Additional Knowledge:
· Market monopoly: Foreign firms with strong financial backing may acquire local firms, leading to reduced domestic entrepreneurship.
· Technology dependence: Some foreign investors retain control over high-tech knowledge, limiting local development.
· Profit outflow: MNCs often send profits back to their headquarters rather than reinvesting locally.
· Increased competition: While it can be challenging for domestic firms, it often results in improved efficiency and consumer benefits.