Of late, majority of the economies all over the world have opened their door to Foreign Direct Investment(FDI). The FDI extends a number of benefits to the host countries in terms of economic development, employment generation and technology transfers. At the same time there are some negative sides to the FDI flow like increased level of competition in the economy and concentration of investment in selected sectors to mention a few. This article tries to explore the other side of the FDI in an economy.

The infusion of foreign capital into a country not only accelerates its overall economic growth but at the same time also aids in fostering a dynamic and flexible private sector development through increased level of competition. It has been empirically observed that economies with greater level of competition are in a better position to withstand economic fluctuations and are also able to generate consistent level of growth rate. Competition in an economy can be brought about through various means and Foreign Direct Investment (FDI) is one of the prime factors that enhances the level of competition in an economy. But the moot question that remains to be answered is whether increased competition is always beneficial to the economy? Competition can also have several negative impacts associated with it. Let us examine.

Careful examination of the World Development Report published by the World Bank reveals that improvement in the global investment climate is the primary cause for increased growth and poverty alleviation. But this may not always be the true case and there can be several instances where the validity of the statement can be questioned. However, many developing countries have tried to attract foreign investments by curbing regulations. This, in turn, has limited the freedom of foreign investors.

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