Transcript The False Promise of Foreign Direct Investment & Sustainable

Foreign Investment Rules in the
World Economy: Leaving Room for
Development?
Kevin P. Gallagher
Global Development and
Environment Institute
www.ase.tufts.edu/gdae
Three Key Points
• Investment rules do not bring
investment in and of themselves
• Foreign investment does not
automatically bring growth and
sustainable development
• Global investment regime is needed but
current proposals will not foster
sustainable development
Foreign Investment and Foreign Aid, 1990 to 2000
1,600,000
1,400,000
$US millions
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Foreign Investment Trends in Context
•Developing country share of World Inflows
has been small—only 25% of the total
•3 nations receive the bulk of developing
country investment (China, Mexico, Brazil)
•Foreign aid outweighs 55 of the 70 poorest
countries
•Investment rules don’t necessarily increase
the amount or quality of investment
•Investment flows have been sharply
decreasing since 2000
World Investment, 1990 to 2002
1,600,000
1,400,000
Inflows ($millions)
1,200,000
1,000,000
World
Developed Countries
Developing Countries
800,000
600,000
400,000
200,000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001 2002*
10 Largest Developing Country Recipients of FDI inflows
($US billions)
Top 10
(1990-2000)
Top 10
2001
ave
China*
Brazil
Mexico
Argentina
Singapore
Malaysia
Bermuda
Poland
Chile
South Korea
Top 10 total:
Total For Developing Countries:
Top 10 share:
Top 3 share:
43.4
12.0
10.1
7.2
7.1
4.7
4.7
3.7
3.3
3.2
99.5
130.9
76%
50%
China*
Mexico
Brazil
Bermuda
Poland
Singapore
Chile
Czech Republic
Taiwan
Thailand
69.7
24.7
22.5
9.9
8.8
8.6
5.5
4.9
4.1
3.8
162.5
200.9
81%
58%
FDI follows growth:
the peer-reviewed literature
•Size of the market
•Proximity to markets
•Growth rate of host economy
•Relative wages
•Macroeconomic stability
FDI doesn’t automatically create growth:
the recent peer-reviewed lit
• 15 most recent studies found
– 3 “no” correlation
– 2 “yes” correlation
– 10 (growth occurred when nations had
corresponding national policies to harnessFDI)
Foreign Investment and Environmental Quality
70
60
Pollution Index
50
40
30
20
10
0
-4
-2
0
2
4
FDI/GDP
6
8
10
FDI and Corporate Social Responsibility
• Hundreds of billions invested in CSR funds
worldwide ($1.2b DSI)
• 18 of the 25 largest US firms in the world do not
pass socially responsible investment screens
• 24 of the 42 largest US firms in Latin America do
not pass socially responsible investment screens
• Intel, Xerox, and Hewlett-Packard are seen as
“leader” investors in their overseas operations
• Alcoa, Monsanto and Eastman Kodak are seen as
“laggard” investors
Not More but Better:
Case Study Evidence
•
•
•
•
Joint venture agreements
Local content standards
Home office/country policies
Advocacy efforts
Pressing for Sustainability in
Investment Rules
1. Make sustainable development, not simply
increases in investment, the goal of investment
agreements
2. Protect national “policy space” (performance
requirements etc) for developing countries
3. Negotiate separate framework agreement on
investment at regional, bilateral, or global
levels (not in the WTO)
A “Better” Approach to
Investment Rules
•
•
•
•
Preserve the right to regulate
Post-establishment rights only
FDI only
Non-discrimination—clearly defined
and according to national regulations
• No extension of performance
requirements
• Dispute settlement—state-to-state
Environmental Kuznets Curve
250 -
Pollution
200 150 -
100 50 00
5000
10000
15000
GDP per Capita
20000
25000
Empirical Evidence of EKC
• Only applies to criteria air pollutants
in developed countries
• Turning points much higher than
previously estimated
• Does not apply to historical timeseries in single countries
• Can be explained by factors other
than income
EKC for Sulfur?
2,900,000
2,700,000
Sulfur Emissions (tons)
R2 = 0.4748
2,500,000
2,300,000
2,100,000
1,900,000
1,700,000
1,500,000
4700
4800
4900
5000
5100
5200
GDP per capita ($1985 PPP)
5300
5400
5500