How do MNCs contribute to foreign direct investment in a host country?

Man you have asked a prrety detailed question for this forum. Some one can easily do their Phd on this topic.

I will make an attempt to answer in short with out going to too many details.

Generally speaking the perception is that MNCs drain national resources and stash their profits in a a country other than the Host Nation.

Similarly, MNCs are associated with exploitation and are considered anti-small businesses.

How ever there are indeed some plus points.

For instance - an MNC setting up operations in a new country would hire employees, create jobs (investment in human resource), acquire land and facilities for which it will have to bring capital from a its head office to investment furthermore it will pay taxes on such transactions (capital investment), and last but not least it pay taxes on its earning - giving the host company's goverment extra cash to "invest in country".

Indriectly the people associated with the MNC will now all earn wages and pay taxes, and would spend in the country there by contributing to the country's economy,

Depending on the nature of the business the investment may be more or less.

But any amount of money the MNC has brought from day one (paid-up-capital) will be contributed as foreign direct investment.

Last but least, if one company enters its competitors will be tempted to enter the market as well and if they do - the initial MNC would have compounded the FDI.

For Example:
McDonnald's decides to go to India - buys lands all over India to make resturants, spends money building the places, hires people to staff resturants, runs ads on TV, and etc . . .

Remember at this point McDonnald's does not have any earning from India - so any thing it brings is paid up capital and FDI - provided it does not take a loan from a local bank.

Now McDonnalds is operational and success stories start appearing in the papers - Burger King (a rival) decides to enter India.

. . . I hope this helps answer you question.