FOCUS ON FOREIGN INVESTMENTS:Pro-poor Foreign Investments

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International Relations-PSC 201

LESSON 39

FOCUS ON FOREIGN INVESTMENTS

Investing in poor countries

Many scholars agree that foreign investments can potentially help poor countries progress. Channeling

foreign investments to improve the lives of the poor requires multidimensional efforts by a range of

stakeholders to counterbalance the urge of profit maximization with the need to achieve more benevolent

growth.

How Foreign Investments Aid Poor Countries

The conventional argument states that foreign investments can help poor countries acquire the technology,

management skills and exposure to market mechanisms which are vital requirements to kick-start economic

development.

Developing countries are encouraged by international financial institutions to provide the essential legal,

institutional and physical infrastructure necessary to attract foreign investments. Yet the contribution of

foreign direct investments and multinational activities in helping develop poor countries remains limited,

except in some resource rich African and Asian countries, where too benefits are unevenly distributed.

Partnership with supranational agencies, like the World Bank or with the UN system, has inculcated a sense

of social responsibility in multinational organizations.

Prominent initiatives including the UN's Global Compact which led to articulation of the Millennium

Development Goals, as well as the proposed Marshall Plan for Africa, have explicitly aimed to collaborate

closely with multinationals to help poor countries develop.

Contentions Concerning Foreign Investments

Conceding the utility of making capitalism more inclusive and pro-poor, it is also important to realize that

foreign investment can also have seriously adverse impacts on industries where the very poor work.

Foreign investments in the informal economy including sectors like forestry, agriculture and textiles can be

particularly problematic. When multinationals set up plants and factories or when smaller farms or

companies enter into partnerships with large corporations, it often leads smaller businesses to shut down.

Multinational intrusion in the formal economy can lead to a loss of jobs which has compelled poor workers,

including women, to enter the casual workforce. Poor people cannot upgrade their skills to meet

requirements of working in an increasingly sophisticated marketplace.

Pro-poor Foreign Investments

If multinationals were to provide training within the informal sector, many marginalized workers could

enter the formal economy and boost their incomes. Governments in developing countries need to also

upgrade skills and invest in the infrastructure of the informal sector. NGOs are trying to fill this existing

gap.

Relevant Vocabulary

Multinational involving several nations

Counterbalance to balance an uneven position by a countering move

Upgrade - improve

Infrastructure structure of communications, road and rail, etc.

International Relations-PSC 201

Suggested Readings

Students are advised to visit the following web-pages for this lecture, which provide useful and interesting

information:

International Trade and Investment

www.iie.com/research/trade.htm

FDI: The Overstretched Myth

www.foreignaffairs.org/20050301facomment84201/david-h-levey-stuart-s-brown/the-overstretch-

myth.html

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