Final answer:
Both the host country and the investing company benefit when a company relocates operations overseas to exploit lower labor costs, in line with the free market view of FDI. This action not only reduces costs for the company but also promotes economic growth and development in the host country through capital inflow and transfer of expertise.
Step-by-step explanation:
When a company moves operations overseas to take advantage of lower labor costs, this strategy increases the overall efficiency of resource utilization in the global economy. According to the free market view of Foreign Direct Investment (FDI), both the host country and the investing company benefit from this arrangement. For the investing company, moving operations can lead to cost savings and higher profits due to reduced labor costs. Simultaneously, the host country benefits from an influx of capital, potential for economic growth, job creation, and the acquisition of new technology and expertise.
The exchange of financial capital inflows often brings along management abilities, technological expertise, and training, which can contribute to the economic development of the host country. Moreover, this inflow of investments can facilitate a 'catch-up' in economic growth for low-income countries and spur their physical capital investment.