Foreign Direct Investment is a category of cross border investment made by a person living in one economy into the production or services of an enterprise resident in a foreign economy with intent to create a lasting interest and a significant degree of control over that enterprise.[1] In simple terms it is a mode of doing business in a foreign economy. Foreign direct investment (FDI) plays a vital role in promoting global economic integration as it establishes robust and enduring connections between economies of different nations. FDI facilitates international trade by granting access to foreign markets and serves as a significant driver for the growth of strategic sectors, technology transfer, knowledge generation, increased innovation, competition, and the creation of employment opportunities, among other advantageous outcomes, across nations.[2] However, High levels of FDI can challenge the government’s ability to protect domestic industries. The unresolved policy dilemma revolves around the balance between the advantages of increased foreign direct investment (FDI) for the receiving country and the government’s ability to retain control over specific sectors of the local economy, along with the benefits associated with maintaining such control..[3]
Foreign Direct Investment (FDI) is a vital driver of economic growth in developing countries, offering access to capital, technology, and global markets. However, the benefits of FDI can only be fully realized when accompanied by a strong competition policy that ensures open and fair markets. In the absence of such a policy, entrenched monopolistic and oligopolistic structures may dominate, creating barriers to both domestic development and foreign investment.[4] As economies liberalize and integrate into the global market, the role of competition law becomes increasingly important in maintaining market efficiency and preventing anti-competitive practices. A competition policy that is too strict may stifle market entry and discourage large multinational companies from investing, fearing overregulation or excessive compliance burdens. At the same time, overly permissive competition frameworks may allow powerful multinational corporations to dominate local markets, undermining domestic industries. Thus, a balanced approach is essential—one that attracts FDI while safeguarding economic sovereignty and fostering healthy competition.
However, there is no unerring form of competition policy which will always promote FDI inflow as well as regulate it to the extent that it will not be disadvantageous to the nation’s economy. Some investors may find government measures that shield specific economic sectors more appealing than a completely competitive market because of the possibility for anomalous profit brought on by imperfect competition in that sector. An aggressive enforcement strategy combined with the implementation of a competition policy, on the other hand, can draw in investors because people in this latter category will favour a level playing field and guarantees that government-owned or protected industries won’t receive unfair advantages over promises of unfair advantages given to a select few.[5]
[1]Foreign direct investment (FDI), https://www.oecd-ilibrary.org/finance-and-investment/foreign-direct-investment-fdi/indicator-group/english_9a523b18-en (last visited Feb 8, 2025).
[2]Mohammad Sumamah, Foreign Direct Investment In India: Law And Procedure, LiveLaw (2022), https://www-livelaw-in.mnlum.remotlog.com/know-the-law/foreign-direct-investment-foreign-exchange-management-non-debt-instruments-rules-foreign-exchange-management-act-ministry-of-finance-207729?infinitescroll=1 (last visited Feb 2, 2025).
[3]Julian L. Clarke, Competition Policy And Foreign Direct Investment.
[4]Charles Oman, Policy Competition for Foreign Direct Investment: A Study of Competition among Governments to Attract FDI, DEVELOPMENT CENTRE OF THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT.
[5]Julian L. Clarke, supra note 4.