Chapter 20, Problem 20AA

To determine

To analyze: The reasons given by the people regarding direct foreign investment in the U.S.

Explanation of Solution

The impact of DFI is both positive as well as negative. Following are the reasons why people in the U.S are concerned about DFI and their counter arguments:

Reasons for concern about DFI	Counter argument
Highly-compensated jobs: The DFI will open new jobs in the U.S as DFI will rise the number of firm operating in the U.S	DFI will hurt the local firm who will be unable to compete in the market due to which they will get eliminated from the market.
Spurring innovation: U.S will get new technology by DFI as there will be spill over of knowledge.	The new technology will bring new way of production which will finally raise the production of the country and hence, price of the product will fall. But the small traditional and indigenous firm will face challenges like fall in demand and can lead to shut down.
Driving export: The market size will become broader by the DFI as it will lead to a production of commodities in lower cost due to which customer can buy it at lower cost and hence, enhance the number of customers in the U.S market.	The flow of new product will lead to disappearance of some indigenous products which lies in the basked of some consumers.
Employment: DFI will lead to a rise in the number of firms and hence employment.	It also leads to unemployment because many small firms close due to competition.