Dubai American Academy

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.