What negative impact can FDI have on competition within the host country?

Foreign Direct Investment (FDI) can sometimes lead to monopolistic practices within the host country. This typically occurs when a large multinational corporation enters a market and establishes a dominant position that smaller local businesses cannot compete against effectively. The resources and market power of the multinational may allow it to undercut prices or engage in aggressive marketing strategies that drive local firms out of the market.

When this happens, the originally competitive landscape may transform into one that is much less competitive, as smaller businesses struggle to survive against such dominant players. The result is often a concentration of market power and less choice for consumers, which mirrors the characteristics of monopolistic structures. As competition diminishes, the incentives for innovation and improved services can also decline, negatively affecting the broader economic landscape. Thus, while FDI is generally associated with benefits like capital inflow and job creation, it can also inadvertently foster an environment where monopolistic practices take root, harming the competitive ecosystem of the host country.