Which situation best illustrates crowding-out caused by FDI in a developing economy?

CA Foundation · Business Economics · MTP · January 2026
Which situation best illustrates crowding-out caused by FDI in a developing economy?
(A) A. Foreign firms export their entire output
(B) B. Foreign firms borrow heavily from domestic capital markets
(C) C. Foreign firms use imported capital goods
(D) D. Foreign firms reinvest profits locally

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. Foreign firms borrow heavily from domestic capital markets

Topics: International Trade

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