Foreign direct investment and globalization

Abstract

The phenomenon of globalization has served to rekindle many an old controversy on the contribution of foreign direct investment (FDI) to development. As in the past, its critics assign it centre stage in propagating the perceived evils of globalization, including the demise of the nation state, impoverishment of developing countries, collapse of cherished cultural values and the degradation of the environment. Its advocates reiterate the role of FDI in promoting trade, growth and employment. Indeed, since the 1980s most developing countries have eagerly sought FDI, proposals such as the multilateral agreement on investment (MAI) drafted by the OECD have sought to liberalize rules and regulations governing FDI, and flows of FDI to developing countries have increased appreciably. There is a copious literature on various aspects of FDI. Yet there are very few settled conclusions on the contribution of FDI to the development process, in part due to the complex nature of FDI and in part due to the ideological preconceptions which colour most debates on the issue. Indeed, there may be no other area of economic inquiry where so much has been written and yet we know so little.