Final answer:
The two costs of FDI to a home country include 'brain drain' and 'knowledge transfer,' which can lead to a skilled worker shortage and the loss of intellectual capital, respectively. Enhanced global competitiveness and increased tax revenue are generally benefits to the host country, not costs to the home country.
Step-by-step explanation:
Two costs of Foreign Direct Investment (FDI) to a home country are ‘brain drain’ and the possibility of ‘knowledge transfer’. Brain drain occurs when highly skilled and educated individuals leave their home country to work in the country where the investment is made. This can lead to a shortage of skilled workers in the home country. Knowledge transfer refers to the possibility that proprietary information, industrial practices, or other intellectual capital can be transferred to the foreign entity, which might then use it to compete against the home country's firms.
While not involved as costs to the home country, enhanced global competitiveness and increased tax revenue are generally considered benefits of FDI to the host country. In the context of developing countries needing foreign capital, they can encourage foreign investors while protecting themselves by implementing strong regulatory frameworks to minimize the risks of capital flight and banking system collapse, as well as forming international agreements to counter domestic special interests and protectionist measures.