There are many demerits of FDI. The main demerit is that it increases the foreign interference in the country. Secondly, it poses the major threat to the local industries in the economy. It makes the economy to move towards privatization which in the long run may decrease the control of the government. Sometimes, it can create issues about the cultural aspects in the country. The expectations of the people regarding their salaries increases which lowers the skilled people strength in local companies. Government has to face a lot of international pressure after permitting free FDI in the state. FDI is very important for the developing countries but it's demerits are also not ignorable.
The biggest demerit is the sustain of shocks to the economy.
- Inflation may increase slightly
- Domestic firms may suffer if they are relatively uncompetitive
- If there is a lot of FDI into one industry e.g. The automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are “seeking to attract high value-added services such as research and development (e.g.) biotechnology)”