Direct investments have the purpose of promoting growth and sustainable development by helping foreign economies grow. Various investment companies around the world can acquire subsidiaries in foreign countries with the help of which the investment is really made.

Still, advantages and disadvantages may arise when it comes to this type of investments. Basically a direct investment has the role to stimulate a foreign country’s economy by creating more jobs and a higher quality competition. In the end, the Government of a country with a large number of investors will raise in the eyes of the international community because if so many foreign companies are willing to invest in some country, that proves that the country is well managed. So, in some cases the number of stakeholders in a country can say a lot about its Government and governing policies.

The advantages and disadvantages can however be looked at from at least two points of view. One is the one of the investing company and the other is the one of the country or territory in which is invested. The investment companies can suffer great losses when the particular country in which they invested has secret national policies. In fact, the national financial policies are the first to be considered when a company wants to invest in a foreign country.

On the other hand, the foreign investments do not have all the time the results that are expected. Some studies have proved that in specific cases, the direct investment can have a trickle-down effect on the local economy. It seems that almost two-thirds of the countries that benefit from foreign investments are rich countries and the form of investment is usually mergers and acquisitions.

Another disadvantage is that in developing countries FDI is not really translating to net foreign exchange inflow also due to financial policies. For example, direct investment India is not very successful due to its infrastructure and bureaucracy but still India is a developing country which needs financial sustainment. Thus, investment companies always take their own security measures and they prefer investing in countries that offer them bigger opportunities at the lowest risks.

From another point of view, it is common that many multinational investors borrow money from the local banks at very favorable interest and then reinvest it in the same country. It is arguable how much of investors these types of companies are. The very immediate effect of this procedure is that the local firms are disadvantaged from the start.

A good example of functional FDI is China. The China direct investment stock has gradually grown contributing to sustaining the Chinese economy since the late 1970s. The success of the growing of the China direct investment stock was mainly granted by the Chinese Government’s financial policies that sustained foreign investments in the country. The maximum china absorbed was over $92 billion in 2008 but whatsoever since then the FDI began to constantly fall. This can be due to various reasons. But what is more important is that China is the proof that the foreign direct investments can realize their purpose to promote growth and sustainable development.