Foreign Direct Investment’s Integral Role in Driving the Global Economy By Ideas Lab Staff July 3, 2013 World Economic Forum releases report on the importance of foreign direct investment. Foreign direct investment (FDI) is an essential driving force for growth and development and is linked to trade, says a new World Economic Forum report. The report determines key benefits of FDI through econometric analysis: Advanced country income has grown about 1.1 percent per year faster over the past two decades Developing country income has grown 1.4 percent per year faster over the past two decades World GDP is more than 20 percent larger today than in 1990 Employment growth: roughly 21 million people were employed by foreign affiliates of MNCs in 1990 rising to 69 million in 2011. But the full potential of FDI is not being realized, according to the report. The bodies governing FDI have been indirectly hindering its possible, significant benefits for participating nations. Uri Dadush, senior associate and director of Carnegie’s International Economics Program suggests that institutions overseeing FDI “do little to mediate the diverse fiscal and financial incentives that communities, states, and countries offer to attract investment.” Consequently, this “fragmented governance of FDI” results in a confusing platform for investors and governments, says the report. The World Economic Forum Global Agenda Council tries to encourage FDI to maximize the potential contribution to better technology, an increase in wages, and overall development. The report acknowledges that in the past some nations have imposed FDI barriers because FDI has caused “emotional reactions” most notably in developing nations. The report claims FDI brought back “memories of colonization” and seemed to threaten the concept of economic independence. Recently, however, as the stigma historically associated with FDI has lessened more nations are recognizing the value of FDI. In fact, fDi Magazine annually distinguishes the most successful investments. For instance, in 2012 the winner for the “Best Job Creation Projects” category was the Chinese Beigi Foton Motor’s auto plant in Cameroon. This China-based commercial manufacturer invested $500 million in a plant in Kribi which is predicted to create 8,000 jobs. In order to continue the growth of FDI and the benefits it can provide, the report claims it is essential to eliminate the confusion and inefficiency that surrounds the governance of FDI. Because there is no overarching treaty or institution overlooking investment activity, the report offers the creation of a multilateral agreement as the solution to “fragmented governance.” ideaslaboratory/2013/07/03/foreign-direct-investments-integral-role-in-driving-the-global-economy/
Posted on: Thu, 01 Aug 2013 05:33:55 +0000
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