Monday, August 8, 2011

FDI and Economic Development

In the 1960s Foreign Direct Investment (FDI) and Transnational Corporations (TNCs) were seen, at least by progressives, as an obstruction in the process of economic development.  The ultimate critique was that not much of the technological development introduced by foreign firms diffused to other parts of the economy, and that profit remittances would become a burden on the balance of payments accounts.  Hence, TNCs were seen as signs of the exploitation of the South by the North.  It did not help that companies, like International Telephone and Telegraph (ITT) in Chile during the Allende government, were plotting to bring down democratically elected governments.  Everything about foreign capital was bad.

By the 1990s, after a lost decade and the victory of the Washington Consensus Decalogue, foreign capital and TNCs were seen as central for economic development.  FDI created jobs, increased productivity, and macroeconomic problems associated to the balance of payments accounts were seen as secondary, since export performance, within the context of an export-led development strategy, would reduce the possibilities of crises.  Everything about foreign capital was good.

Read the rest here.

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