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available in host country. Put it another way, this investment made may have as its
main objective the supply of the local market and thus does not encourage exports.
Economic experts have claimed that FDI is one of the most way of spreading
economics problem, especially those that have occurred in the multinationals
countries of origin. Host countries become more open economies and more subject
to changes in the global economy.
Technology transfer help the companies produces cheaper product and
increase competition in the market. However, increased competition does not
produce only positive effects on the host country. Experts argue that this increased
competition leads inevitably to the closure of some local firms (that can not
compete with multinationals due to the advantages they have), which leads to
increased concentration in the sector, and in turn will lead to decreased competition.
In order to face the strong competition from multinationals, concentration can also
occur between local firms to achieve gains in economies of scale, reducing
competition.
Finally, another effect that is recorded by several studies is that caused by the
competition created in access to credit, which will bring negative consequences to
the host countrys economy. In fact, technology transfer through FDI cost quite a lot
of money and that will have multinationals tend to be partly financed by the host
countries financial markets. This increase in financing needs in the country will
have effects in that market, so it is predicted that the costs of credit increase and that
the access to credit changes. Multinationals financed in host countries will reduce
their ability to grant loans, making it difficult for local firms to obtain loans.
Additionally, FDI can cause a loss of domestic savings which further makes the
availability to grant loans worse. These problems in access to credit are mainly
experienced by local firms which have a smaller structure, and then find it difficult
to support the increased costs of credit, plus their weak bargaining power with
financial institutions. This competition for funding could preclude some local firms
from necessary investments for their development or even for their maintenance,
which may lead to their disappearance.