Question

what is a potential problem associated with this type of foreign direct investment (fdi)? there can be economic uncertainty for madagascar, the host country, because the company may move in 5 years the company will decrease its profit margins madagascar will by international law face at least 50% tariffs from other exporters in the relevant sectors there will be technology transfer and madagascan workers will gain new skills

Explanation:

To determine the potential problem with FDI, we analyze each option:

• Option 1: If the FDI company moves in 5 years, the host country (Madagascar) loses investment, causing economic uncertainty. This is a valid problem.
• Option 2: FDI aims to increase profits, so decreasing margins is not a typical FDI problem. Eliminate.
• Option 3: International law doesn’t mandate 50% tariffs for FDI - related sectors. Eliminate.
• Option 4: Technology transfer and skill gain are benefits, not problems. Eliminate.

Answer:

A. There can be economic uncertainty for Madagascar, the host country, because the company may move in 5 years