Merit Goods & Inward Foreign Direct Investment (DP IB Economics)
Revision Note
Provision of Merit Goods
Merit goods are beneficial to society but are under-provided in a market
Governments often have to subsidise these goods in order to lower the price and/or increase the provision
The provision of merit goods can result in significant improvements to human development and quality of life
The Provision of Merit Goods to Aid Economic Growth & Development
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Education programs |
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Health programs |
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Infrastructure projects |
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Inward Foreign Direct Investment (FDI)
Inward FDI occurs when investment by foreign firms results in more than a 10% share of ownership of domestic firms
Foreign FDI has the potential to generate significant economic growth as more economic activity, employment and output is generated
Foreign FDI has the potential to raise household income which helps to break the poverty cycle
The impact of FDI on economic growth depends on how the FDI occurs
E.g. Chinese firms frequently invest overseas, but bring their own employees with them - and send all of their profits home - the economy and individuals within the economy benefit less than they could have
E.g. Indian firms frequently invest overseas and tend to hire local employees and reinvest more of the profits than Chinese firms generally do
Advantages and Disadvantages of FDI to Generate Economic Growth and Development
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