Multinational corporations invest money by introducing new industrial sites to an area, in order to produce more of their product, sometimes in response to changes noticed in that area, such as a growing population or enhanced transport network."
(
Wikipedia, 2005, visited 2005-11-11)
Inward Investment and Inward FDI
As defined by the IMF, the term foreign direct investment has a restrictive meaning. It occurs when the foreign investor either owns 10 per cent or more of the ordinary shares or voting power of an enterprise, or owns less yet still maintains an effective voice in management (see foreign direct investment). However, in the context of globalization, the terms
inward investment and
inward FDI are often used as synonyms.
Effects of Inward Investment on Host Countries
"There are many possible effects of an inflow of FDI on a host country. It is generally taken for granted that the investing firms possess some technology superior to that of local, host country firms. One possible impact would be the production of goods and services of higher quality than previously available or at lower prices, resulting in higher consumer welfare. […] Another possibility, not dependent on the technological superiority of investing firms, would be that the
inward investment adds to the host country capital stock and in doing so raises the level of output."
"For both wages and productivity, the spillovers to domestically-owned firms or establishments could be either positive or negative. Wage spillovers could be negative, for example, if the foreign- owned firms hired the best workers, at their going wages or higher ones, leaving only lower-quality workers for the domestically-owned firms. Productivity spillovers could be negative if foreign-owned firms took market shares from domestically-owned firms, leaving the latter to produce at lower, less economical, production levels."
(Lipsey, R. and F. Sjöholm,
Host Country Impacts of Inward FDI: Why Such Different Answers?, visited 2007-07-18)
It is important to note, however, that "differences in labour costs between countries do not appear to be as central in attracting
inward investment as is often implied; rather, productivity, other costs and market access appear to be more influential."
(Edwards, T.,
The UK and the International Division of Labour, 1998, visited 2005-11-14)
Barriers to Inward Investment
"Host governments are rarely neutral toward inward foreign direct investment (FDI). Virtually all host governments have barriers to inward FDI of greater or lesser formality, and greater or lesser transparency. At the same time, many governments offer explicit and implicit incentives to foreign-owned multinational companies (MNCs) to establish affiliates in their host markets."
Formal investment barriers may be defined as the set of controls on inward FDI introduced through legislation and government regulation. Major manifestations of formal investment barriers include: broad legislation governing terms and conditions under which foreign-owned businesses can be established and operated; screening and monitoring of investors for purposes of approval; legislative or regulatory restrictions on the extent of foreign ownership and control in specific sectors; trade-related investment requirements, such as minimum export volumes; and other requirements, such as minimum levels of domestic R&D.
Informal investment barriers may be defined as an array of impediments to FDI in a host country; they may arise from administrative procedures and unpublished policies, structural rigidities in the host market, or political, cultural and social institutions that work to discourage inward FDI. Informal investment barriers might be seen as policies that, while not specifically concerned with inward FDI, have an especially strong impact on foreign investors.
(Globerman, S. and D. Shapiro,
Canadian Government Policies Toward Inward Foreign Direct Investment" Industry Canada, visited 2011-07-18)
Labour and Inward Investment
"Over-regulated labour and product markets can be just as strong a disincentive to
inward investment as formal foreign ownership restrictions, according to an OECD study. Strict job protection laws, high labour taxes, and insufficiently competitive markets, in its view, tend to divert such investment to locations where costs are lower."
(Blondal, S. and G. Nicoletti,
Strict Labour and Product Market Rules Hold Back Inward Investment, OECD Study Shows, 2003, visited 2011-07-18)
"The competition amongst and between both OECD and non-OECD countries for FDI is intense and puts the process of global economic integration at risk. To attract multinational companies and their investment, non-OECD governments are increasingly offering incentive packages, including exemptions from domestic labour law provisions to attract
inward investment. This is in part a response to their inability to match the financial incentives offered to inward investors by industrialized countries […].
Many non-OECD governments are suppressing workers' rights to gain FDI. […] Many MNEs are demanding that restrictions be applied to the activity of workers' representatives as a precondition for inward investment."
"While FDI can bring significant welfare gains to workers and their families, it is equally true […] that workers' rights are being violated on a daily basis as governments compete to attract MNEs and their
inward investment. This is particularly so, but not confined to EPZs [export processing zones]. The special legal conditions for EPZs isolate them and reduce positive spill-over effects on the domestic economy. The volume of goods produced by firms in EPZs which can be sold domestically is often subject to quantitative restrictions. There are also limits for removing equipment and machinery from EPZ firms to locations outside the zone. In addition, inward investors are given fiscal and financial incentives to invest there. They are frequently exempted from the labour legislation that covers domestic firms, or where labour legislation remains, enforcement is weak or non-existent. EPZs are normally set apart from those areas containing domestic firms. Special areas such as ‘free ports' also exist in OECD countries but derogations from domestic law are usually limited and national labour legislation is applied."
(Trade Union Advisory Committee,
Foreign Direct Investment and Labour Standards, visited 2011-07-18)
