Foreign direct investment and economic development IB Economics Foreign direct investment and economic development

Foreign Direct Investment (FDI) Long-term investment by private multinational corporations (MNCs) in countries overseas. Build new plants or expand existing facilities in foreign countries Merge with or buy existing firms in foreign countries

Developing economies 28.7% - China 8.2% - Africa 3.4% US (most inflows) 15.3% 2008 data

MNCs are attracted to developing countries Seeking natural resources Growing markets, source for demand Low labor costs Few government regulations Tax concessions

Advantages associated with FDI Fill savings gap Provide employment, education, training Provide access to R&D, technology, marketing expertise Multiplier on economy Governmental tax revenue Improve infrastructure More choice, lower prices for consumers Efficient allocation of resources

Disadvantages associated with FDI Use own management, use only cheap labor, provide no education or training Too powerful, so get tax advantages and subsidies Transfer pricing (worksheet time!!!) Take advantage of weak labor and pollution laws Strip resources and leave Use capital instead of appropriate technology involving labor-intensive production Send profits home

Corporate Social Responsibility (CSR) Policies regarding human rights, employee rights, environmental protection, sustainable development and community involvement

Ted Talks Euvin Naidoo on investing in Africa (19:05) http://www.ted.com/talks/euvin_naidoo_on_investing_in_africa.html Jacqueline Novogratz invests in Africa’s own solutions (12:56) http://www.ted.com/talks/jacqueline_novogratz_invests_in_ending_poverty.html