Foreign Direct Investment
Depending on the stakeholders being affected by foreign direct investment (FDI), what is your opinion on foreign direct investment?
In Favour
Side Score: 92
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Against
Side Score: 96
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5
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FdI improves the balance of trade for developing countries, as it allows the MNCs to produce using the resources from developing countries, and internationally trade their produced goods with other countries, increasing exports in developing countries, and improving their balance of trade. Side: In Favour
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5
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There are a myriad of examples out there, one of the most relevant being China, From the 32nd in 1978 to the 3rd largest exporting country in the world in 2004, China’s export boom was accompanied by substantial inflows of foreign direct investment in the same period. Exports by foreign-invested enterprises in 2004 were $339 billion, comprising 57% of China’s total exports. Side: In Favour
5
points
To an extent FDI is beneficial for developing countries because when Multinational Companies enter these countries, they encourage education and overall development in the country. These companies transfer skills and knowledge to the local people. The development of the local people is not only beneficial for the MNCs but also for the country itself because the increase in education will increase the overall welfare of the people in the country. For example, the HDI of Nigeria has increased significantly since Shell has started operating in the country; it is now in the medium human development index. Side: In Favour
Although the HDI has increased in recent years, shell started operating in Nigeria in 1937. From 2004 to 2010, the number of people living on < $1/ day has increased from 54.7% to 60.9%. The MNC is just taking the money back with them and this is not beneficial to the country. (http://goo.gl/2IQ0wn) Side: Against
3
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4
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FDI stimulates growth for developing countries. By allowing foreign MNC's in to the country, developing countries can benefit from their knowledge, experience and technology in order to encourage their own future domestic businesses to start up in similar industries, whilst at the time of FDI from the MNC, providing jobs and training to their domestic population. This stimulates both growth in the short term as people in jobs can then increase savings, escaping poverty traps and encouraging investment which can increase economic growth, and in the long term can help start up new businesses domestically as a result of the knowledge transfer occuring from the FDI. For example, high speed trains were originally produced mainly by European companies but with their FDI in developing countries, the transfer of knowledge, particularly to places like China, has enabled domestic businesses to start up offering the same construction projects of high speed trains at home Side: In Favour
7
points
On the surface, this argument holds some truth. If we look closer at the realities of FDI, we find several flaws. When investing in developing countries, the priority for the typical MNC is profit-maximization. The MNC's knowledge, experience, and technology, as a result, are not openly shared with the developing country. Instead, they are safeguarded to prevent competition. In the long-run, this is inadvertently a detriment to the MNC itself, as it becomes complacent with its level of efficiency and sees no incentive to better its methods of production, consider the ethical implications, or focus on the satisfaction of the consumer. This can be seen with Apple, a multi-national company that has reportedly exploited workers in China in order to hasten production. The provision of jobs is also a dilemma for the MNC; should it bring trained workers from its developed areas of operation or resort to the local laborers who would costly require training? The developing country, in either case, is worse off. I would avoid looking at empirical studies to argue here because it is a human's purposeful behavior that gives insight into reality, not the numbers that are so often skewed and shaped according to separate interests. Another argument is that FDI increases savings. How is this possible when the very resources and benefits derived by an MNC are for its own benefit? It is true that the output in the developing country increases but there isn't a one-to-one link between increased GDP (or GNI) and HDI. The most viable way to break the cycle of poverty is not a sole reliance on fiscal injection, but rather an all-encompassing correction of a number of factors: low levels of education, a weak healthcare system, lack of vocational centers, and so and so forth. The starting of new, domestic businesses is an unlikely outcome if the knowledge transfer is limited (stated above). A developing country's inhabitants also lack the enterprising ability of bearing the risk in doing so. Economic dependency is, in many cases, a natural progression from an initial FDI. This is a quasi-fatal economic by-product. Much of China’s FDI in Africa is sovereign loan-financed, contracts are often opaque and there are tensions around the use of imported Chinese labour in building infrastructure. In addition, civil society and more established MNCs in Africa protest Chinese firms’ labour and environmental standards. The Governor of Nigeria’s Central Bank, Sanusi Lamido, said in 2014 that Africa should ‘recognise that China … is in Africa not for African interests but its own’. He called for African governments to take a more competitive stance by adopting policies that allow China to make money while helping to develop the continent. New research, however, suggests those policies remain a cross-continental ‘noodle bowl’. The fact of the matter is that FDI is a precarious economic decision. A praxeological view would rightly point to purposeful human behavior and thus self-interest to explain the Sino-Indian economic relationship. The Dawes Plan of 1924 is another important point of reference for the private motives behind FDI. It is not a terrible surprise that the Great Depression soon ensued. For all stakeholders involved, self-interest is always at play. FDI, in the manner that its typically done, is like dancing on the lip of a volcano. Side: Against
FDI stimulates growth for developing countries. By allowing foreign MNC's in to the country, developing countries can benefit from their knowledge, experience and technology in order to encourage their own future domestic businesses to start up in similar industries, whilst at the time of FDI from the MNC, providing jobs and training to their domestic population. This stimulates both growth in the short term as people in jobs can then increase savings, escaping poverty traps and encouraging investment which can increase economic growth, and in the long term can help start up new businesses domestically as a result of the knowledge transfer occuring from the FDI. For example, high speed trains were originally produced mainly by European companies but with their FDI in developing countries, the transfer of knowledge, particularly to places like China, has enabled domestic businesses to start up offering the same construction projects of high speed trains at home Side: Against
Although the FDI will encourage technological growth, it is unlikely that jobs will be created for the populace. The company investing in the country will be concerned with making profits, and won't waste time training locals; they will bring their own people instead. They will likely not be able to escape the poverty trap. Side: Against
3
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Yes, in reality this does happen. Though there is also the common dilemma for MNC's of the relative cost of bringing in workers from developed countries with them to the developing countries compared with the low wages of new workers that they could train up for the same cost as a developed country's employee's wage/salary Side: In Favour
3
points
This is an example of a more developed country, but many MNCs in the UAE have cited that they "were hampered by a skills shortage." (http://goo.gl/exm2xo). If the locals possessed the appropriate skills, it would be in the firm's interest to hire them and there would be no need for a quota. Side: Against
Foreign Direct Investment stimulates economic growth and development in developing countries. In order to attract investments from foreign countries, governments of developing countries are more motivated to improve the infrastructure, which not only benefits the foreign companies, but also benefits the nation as better infrastructure leads to better transportation, communication, and access to Energy. Side: In Favour
3
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FDI can do wonders if it country that is receiving the investment goes about it well. It is logical that foreign countries are going to try and exploit the people in the country, but that is why the country must take protective measures against this sort of exploitation. For example, the UAE has several laws in place that have not only attracted foreign companies but also kept them there, in addition to advancing the welfare of its own people. One of those laws is the 51-49 rule, where, unless one runs a company in a free zone, he or she must hand over 51% of the company to an Emirati, thus empowering Emirati citizens and giving them resources to advance their own lives Side: In Favour
1
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The UAE is considered a developed country, with an HDI of 0.827, and so logically has laws like this put in place. Developing countries (like Somalia) will likely not have strong laws like this and so will not receive the empowerment that Emirati citizens do. These developing countries will therefore not benefit from the FDI's citizen empowerment. Side: Against
2
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Which is my argument. The UAE became a developed country because it combined FDI with a strong government. Somalia, with its conflict and decentralised government, would not be fit for FDI, and hence does not receive much (World Review). Only now that Somali has been working to crush its pirate problem and create a stable government are companies considering them for FDI. Side: In Favour
3
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FDI creates employment and provides education and training in developing countries. This will increase the skill level of the work force and also pass on knowledge to the less developed nation. Over 13,000 jobs were created in Ireland due to the foreign direct investment of multinational companies. 148 FDI investments were made in 2012 and the number of jobs was up 20 per cent on the figures from the previous year. Side: In Favour
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3
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Foreign direct investment creates jobs. It raises employment, which is particularly positive for developing countries. For example, there are a lot of companies investing in the US, which stimulates job creation. Once jobs and infrastructure are set up, it increases the ability to save therefore hopefully will get people out of the poverty trap in developing countries. link to graph: http://dailysignal.com/2011/08/17/ Side: In Favour
3
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FDI is ultimately a great thing, this is because MNC's that are already profitable can add to the local economy by using more efficient technology to strengthen the local economy. They will also hire and train the local workforce and hence the locals will have extra income to raise their standards of living. The Tax money of these MNC's will also contribute to the growth of the nation. When Oil was first discovered in Saudi Arabia, it's economy, social structure and human rights were severely underdeveloped, today the economy has improved drastically. After a while texan and Californian Oil companies began drilling in Saudi Arabia, which later became the Arabian American Oil company. This strengthened the Saudi Economy and brought in much needed Tax revenue for the country. For example the government is distributing $180 billion to it's populace this year from their oil money. In-addition the Global economy benefits because it now has the supply of oil had risen. Alexander EDDe Side: In Favour
3
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It can also be argued that FDI increases awareness and speeds up social development. There is a certain country that had amongst the cruelest labour practices of the world a mere decade ago, and this was done mainly by the multinationals who took advantage of the lack of labour laws present in the country. However, it was also the foreign press that recognised the treatment of these labourers, and labour conditions in that country have improved significantly. It was due to international outcry that labour conditions in the country not only improved but got better than they were before the FDI, showing how FDI can speed up social development. Side: In Favour
Multinational companies can provides goods that were previously unavailable in the developing countries. The multinational companies can also create join ventures with existing markets, during which they will pass on their knowledge and technology to developing countries. Furthermore, the consumers are also going to be benefited from lower prices, higher quality goods and broader selection, leading to the overall improvement in the standard of living in the country’s population. An example of this can be the economic development of Singapore from the 1960s to the 1990s Singapore’s growth has been mainly facilitated by foreign direct investment. In today’s global perspective Singapore is considered as one of the most conducive business hubs in the world with HDI values and GDP values that no one could have foreseen. Side: In Favour
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7
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1
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Although MNC's may and most probably will bring in their own management team, this does not take away from the fact that they are employing locals. As long as companies are regulated in the payment and treatment of workers, locals may benefit by working for a larger firm. Additionally, the large company will require the help of locals to learn about regulations, customs, and trade in the country, providing more skilled jobs. In terms of location, the MNC must purchase or rent property or land, sometimes overpaying for the land. This continuous flow of income in the society shows the benefits of bringing a multinational company into a developing country as people are able to save more, eventually bringing them out of the poverty trap. Side: In Favour
1
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The fact that they are employing employees does not take away from the fact that employees would be taken advantage of with long work hours and low wages. If the employees are continuously viewed as inferior, this would create a culture clash between the MNC's employees and the local employees. This may result in an uprise of riots and an overall increase of violence as the locals may be enraged at the fact that their homeland is being taken over. Side: Against
The simplistic argument that FDI is modern day imperialism is a hugely simplistic and unsubstantiated argument. Cherry picking examples can render any argument as false. Granted, labour exploitation can occur as a bi-product of globalisation, vilifying economic development as such is inappropriate. FDI can stimulate the economic development of the country in which the investment is made, creating both benefits for local industry and a more conducive environment for the investor. Regardless of the intent of the MNC, inadvertently, FDI can improve the standards of living for the vast majority of countries. One example of such development, with minimal negative externalities would be the rapid growth of the Asian Tigers (Singapore, South Korea, Hong Kong, and Taiwan) from the 1960s to the 1990s, their success predominantly funded by foreign investment. These countries now top various lists for economic growth and HDI development. If this argument alone does not satisfy the aforementioned point, another example would be the case for Venezuela. Economic development aside, social awareness (calibrated through level of charity work and employee satisfaction), increased by 56.3% from 1992-2015. FDI augments, not only economic growth, but social welfare as it introduces a more globally acceptable level of labour dignity, previously not adhered to by the host nation. Benefits for the host nation aside, FDI enhances the domestic nation and MNC tremendously. Locating and operating out of different countries, increases the talent pool available to the country, enhances trade (aiding and increasing the domestic GDP), and perpetuates a notion of global citizenry, interconnectedness and interdependence. Side: In Favour
The countries you have listed have state-controlled economies or market-controlled states (S. Korea). Singapore is on the brink of bubble collapse. Foreign investment must be viewed through long term consequences, not just short term economic growth. Singapore attracts foreign investments as a tax haven. Its market is built entirely upon foreign investment. As other less developed countries open up to foreign investment, investments in Singapore will dwindle. Without a domestic economy to support itself, the country will collapse. S. Korea, on the hand, is controlled by the private sector. The largest corporations have formed a trust (Chaebol) that controls every aspect of society. Almost all foreign investments are filtered through their decision process. They have created their own bubble, but that is separate from the FDI's. Their absolute control prevents unsupported growth from FDI's. Basically, not every country can be run like S. Korea. Many fall into the Singapore category even more so without state-controlled markets. FDI worked great for Hong Kong. Its entire economy was based on FDI's. It was the only developed "Oriental" market in that region for many decades. This was the key to its success. Now that the rest of Asia has opened up, its economy has stagnated. The good thing is that its nearby neighbor China, has turned it into a tourist (shopping) destination. It should be able to sustain itself for a while longer with this new market, at least until better international shopping districts open up in Asia. Taiwan is similar to Israel. Israel was propped up by the US for strategic control in the Middle East. Taiwan was propped up by the US for strategic control against China. This is why the US has been so adamant in defending Taiwan's rights to secession/independence. Their economies used to be completely reliant on the US. Now that they have transitioned to self-sustained economies, they are powerhouses in their respective regions. Not every country is lucky enough to be funded by the US. Side: Against
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That is not necessary. If the type of business is extremely specialized, they will not spend millions in training. Rather, they will continue to hire employees from their own country, for a short period and then replace them with foreign employees. Your hypothesis is true only for mass market goods. Side: Against
While it seems as though MNCs can provide goods that were previously unavailable, thus giving the consumers choice, in the long-run, this could be counter-effective because it can cause local companies to go out of business, reducing the competition and choice that used to exist in the market. An example of this is when supermarkets, such as Wal-Mart, open up in small towns internationally. Since they benefit from economies of scale, they can charge lower prices and can drive the competition (the smaller local stores) out of the market. So eventually, the consumers lose choice as they can only buy from the larger supermarkets. Side: Against
5
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Countries benefit from technology introduced by MNCs only theoretically. In reality, the MNC will try its best to prevent sharing its innovative technology. Sharing it will lead to the creation of competitors, which will eat into the MNC firm's profit and revenue. As such, the MNC will try to keep its technology to itself. For example, 90% of R&D;costs of American companies are spent in the US itself Side: Against
While many economists assume that FDIs bring in jobs for the local developing economy, in reality, the multinational company needs to be filled and can not always be filled by local workers’. This is due to the lack of skill/education available in developing countries, hence causing MNCs to bring in foreign workers therefore preventing locals from gaining jobs in the workforce. Additionally, the country does not gain extra revenue because often, firms take their money back to their own home country. While governments try to increase taxes when more MNCs operate, it is also difficult for the government to account for these taxes. By referring to MNCs entering the market, people assume that MNC’s will pass on knowledge and latest technology to developing countries. However, In reality, MNC’s want to hold on to knowledge and latest technology in order to maintain competitive advantages so will not enter the country to benefit their market. This can also be seen by how the local companies can go out of business and hence, causing loss of jobs (of the local people) and instead, jobs gained by foreigners that come in. Lastly, while many believe that MNCs enter the country and tend to invest more, labor laws might discourage MNCs from investing because of higher costs hence, acting as a disadvantage. Side: Against
4
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Offshore outsourcing is the method that firms use to get cheap foreign labor to manufacture goods or provide services only to sell them back into the domestic marketplace. Today, many Americans are concerned about the issue of whether American multinational companies will continue to export jobs to cheap overseas labor markets. In the fall of 2003, the University of California-Berkeley showed that as many as 14 million American jobs were potentially at risk over the next decade. In 2004, the United States faced a half-trillion-dollar trade deficit, with a surplus in services. Opponents of offshoring claim that it takes jobs away from Americans, while also increasing the imbalance of trade. This is because local citizens aren't getting jobs because of the MSCs giving jobs to foreigners and threatening the welfare of the country and increasing the imbalance. Side: Against
FDI may cause local companies of that country to go out of business. Because the multinational companies are larger, they are able to benefit from economies of scale and produce their products at a lower price. Local companies, however, are smaller and therefore, are not able to lower their price to be below that of the MNC's, making them go out of business. Furthermore, even though the consumers may benefit, the country's GNI will not always improve as the MNC's are making profit, but taking it back to their country; while, the local companies are going out of business and therefore, are unable to provide back to the company. Hence, while the GDP of that country may increase, the GNI will not always increase. Side: Against
5
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It could be argued that with FDI, MNCs would pass on their knowledge and technology to the developing country in which they are setting up in. This would lead to an increase in the standard of living, which leads to economic development. However, not only would this not increase employment as jobs done by people would be replaced by machines, it is also very unlikely that MNCs will actually pass on their knowledge to these countries as this would lead to them losing their competitive advantage. By doing this MNCs can also cause local companies to go out of business, further adding to the unemployment. An example of this is the effects of the FDI on the Polish construction sector which led to local companies to fail as they could not keep up with he new competition. Side: Against
4
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By allowing MNC's into the country, the people are subject to being used as labor for the factories, decreasing the income levels. As the income levels decrease, the society workers will be in poverty as they are underpaid by the MNC's. Also, having MNC's will negatively affect the impact of the headquarter nation, as jobs will not be created for their fellow countrymen who demand higher wages, but rather workers from other nations who demand lower wages. The United States for instance relies a lot on investing in China for production. They open factories there and hire cheap workforce outside the country, rather than creating jobs for their own people back home. Apple products are produced in China due to the workforce wage discrepancy, however, many jobs can be created in the U.S. if they do not invest in China. That is why foreign direct investment has a negative impact on an economy. Side: Against
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Mattel, an american toy company, abuses their labor force in China all thanks to foreign direct investment. The link is to an article on Mattel's abuse. Side: Against
Even though many job opportunities were given to workers from other nations, it is indisputable that FDI has increased employment rate within the developing countries to a certain extent. Comparing to the overall employment rate of China in 1986, the employment rate of the country has increased 165-fold by 2011. Also, there is an increase in FDI value from $16.753 billion in 1987 to $ 816.144 billion in 2011 in China. These two sets of data indicate a strong correlation between the two factors and supports the idea that FDI do positively affect the economy of the developing country. Even though the working conditions and wages of these workers may be low, the job opportunities offered by the MNCs can at least provide the people with some income that could pull them out of extreme poverty. Therefore, foreign direct investment inarguable has a positive impact on the economy. Side: In Favour
3
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FDIs do not help developing countries. MNCs only establish in these countries to extract resources cheaply, with no interest to aid the local economy. Typically, MNCs will import their own workers or technology and do not employ locals due to their lack of knowledge. In this way, locals do not benefit from the new firm as no new income is distributed within the economy directly from the MNC. Additionally local workers have the possibility of being exploited by MNCs due to weak labour laws if hired. Either way, the workers are not being helped in any way. Side: Against
4
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Although MNC's do have cheap access to resources, countries only allow this extraction because they do not have the materials to do so themselves. The amount that the government receives from the MNC is better than the amount received from sitting on top of minerals. Additionally income is distributed into the economy, as the new management has moved and needs housing and food, and the MNC itself needs new property and headquarters. Exploitation can be a large issue, however, people are making more at the MNC than what they could be making somewhere else. This in turn increases their income levels. If it did not, they would not be taking the jobs. Side: In Favour
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FDI can lead to an MNC using up the host nation's resources. Rather than using their own nation's resources, they resort to nations with cheaper and more abundant raw materials for a more efficient production. Taking away a countries materials only benefits the MNC's as they receive revenue from their host's resources. This results in injustice for the people as the land is their's and not the MNC's who are taking advantage of these materials. Countries should benefit from their own resources and not exploit other less developed nations. Side: Against
1
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It is common for MNC's to transfer their profits back out of the country to their country of origin. This therefore would have no positive impact for the country as no money would be implemented to benefit the country itself. Side: Against
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3
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This would require the MNC to be producing a good for the locals, however they may simply be there to produce export. Additionally lower prices would drive other local firms out of business as they would be unable to compete and so the MNC would dominate the economy. Side: Against
The tradeoff with FDI is a variable loss of economic independence for a variable gain in economic growth. This is not especially unique to FDI scenarios, of course, since any substantial private capital investment represents a disinvestment of power from the public sector. The notable departure lies in the variable degree of insulation FDI ventures have from the public sector, either owing to international business law or simply to the preponderance of power borne by large multi-national financial interests (particularly in smaller economies). FDI may also limit opportunities for localized entrepreneurship by concentrating financial resources into an oligopoly or monopoly of organizations, preventing local domestic growth. Further, FDI agents are insulated from the repercussions of actions taken by the organizations they invest in and effectively control which can open the door for greater environmental or other abuses of power than might otherwise occur. Of course, there can be exceptions (and this is particularly the case where more developed economies are concerned) but generally speaking foreign investment sacrifices more national and local independence than domestic alternatives would. Side: Against
Sometimes, it is a necessary sacrifice. It improves the lives of the populace at a rate that would be impossible to support through domestic means. There will certainly be long term consequences if the country is unable to shift the economy away from foreign dependence. I guess my argument is that it all depends on execution. Side: In Favour
The only circumstance under which I would consider FDI a preferable alternative to internally financed development is if that latter is entirely impracticable for some reason, which strikes me as a particularly small minority of cases. FDI represents a preference for immediate gratification over longer term interests such as autonomy and stability which are integral for reliable economic development. I understand why it happens, particularly in places where conditions are so deplorable as to render autonomy and stability relatively meaningless and abstract conceptions. At the same time, if you build your economy upon an externally reliant source then you become dependent upon that source so that severing that tie to assert your own interests becomes nearly if not entirely impracticable (i.e. the costs of doing so would revert the economy towards its earlier insolvency). Unless you mean to suggest that there are methods of execution whereby that dependency can be mitigated for early on rather than retroactively? No examples come to mind for me, but I am not especially well versed in this area and am open to learning if you are familiar with any. Side: Against
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