Foreign Direct Investment is the investment of the foreign
country through business in the domestic country. It would bring
foreign expertise and funds of the foreign company in the domestic
country. This investment brings in lot of employment opportunities
and thus is beneficial for the home country.
It affects the supply chain in the form of aggregate demand and
aggregate supply. Aggregate supply moves outward as the supply of
the products increases due to many foreign firms which enter in the
domestic country and invest in the same, start producing and thus
the aggregate supply of the products increases.
At the same time the aggregate demand curve also moves outward and thus the overall demand of the commodities increases. Thus the suppliers become highly efficient as increased FDI offer them an incentive to become more efficient.
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