Concentration of FDI

meta-cre­ation_­date: 3 Novem­ber, 2003 This abstract from “Yale Global”:http://yaleglobal.yale.edu/display.article?id=2704 pos­es the ques­tion: is research in soci­ol­o­gy always this slop­py? Or are these guys just out of their depth? bq. It is high for­eign invest­ment con­cen­tra­tion, not for­eign invest­ment itself, that hin­ders eco­nom­ic growth in coun­tries like Hon­duras. There’s a wide-rang­ing, con­tin­u­ing debate on what the FDI/GDP growth data means. Try Googling “this”:http://www.google.com/search?q=relationship+fdi+gdp+developing. But there’s not much of the lit­er­a­ture that con­cludes that FDI “hin­ders eco­nom­ic growth”. The con­sen­sus, if there is one in the cur­rent debate, is that in some cas­es GDP growth attracts (‘causes&#8217)FDI but in oth­er cas­es it works the oth­er way around. The data is ambigu­ous; it appears that the direc­tion of causal­i­ty as well as the size of the impact of FDI depends on all the cir­cum­stances, par­tic­u­lar­ly the open­ness of the host econ­o­my. The authors of this paper, how­ev­er, have anoth­er expla­na­tion: one that has an unpleas­ant aro­ma of the the old “Raúl Prebisch”:http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_dependencia.html “depen­den­cia” dog­ma. bq. High con­cen­tra­tion lev­els allow for­eign cor­po­ra­tions — wit­ting­ly or not — to gain con­trol over many eco­nom­ic, polit­i­cal, and social dynam­ics in a host coun­try, there­by reduc­ing the abil­i­ty of the state and local elites to imple­ment a nation­al eco­nom­ic pol­i­cy in their country’s own long-term inter­ests. Poor coun­tries with a high con­cen­tra­tion of a par­tic­u­lar for­eign cor­po­rate inter­est, such as Hon­duras, gen­er­ate a pat­tern of depen­den­cy referred to as a “banana repub­lic”. States become weak and often cor­rupt, and depen­dence on export duties makes elites less will­ing to use demand-side stim­uli to spur domes­tic eco­nom­ic growth. The first real­i­ty-test for all con­spir­a­cy the­o­ries should be: is the alleged degree of col­lab­o­ra­tion among the ‘con­spri­a­tors’ cred­i­ble? Do firms—who are the biggest source of equi­ty invest­ment—real­ly col­lab­o­rate among them­selves to exer­cise some sort of intra-region­al ‘depen­den­cy’? For what gain? Could for­eign investors be accused of cul­tur­al clum­si­ness? Pos­si­bly. Carteliz­ing the mar­ket where they can? Very like­ly. But the cre­ation of a ‘depen­den­cy’? What would lead firms to con­spire togeth­er on that? Multi­na­tion­al firms real­ly are multi­na­tion­al, after all. They are inter­est­ed in only one empire: their own. Ignor­ing what appears to be a trend through a scat­ter plot of FDI/GDP ratios, the authors insist that there is no appar­ent cor­re­la­tion between FDI and growth rates; only the con­cen­tra­tion of FDI mat­ters. The first half of this claim is star­tling bq. For exam­ple, from 1990 to 1997 Sin­ga­pore, Thai­land, Argenti­na and the Domini­can Repub­lic — coun­tries with the low­est lev­el of for­eign invest­ment con­cen­tra­tion — had the high­est rates of eco­nom­ic growth. Kenya, Hon­duras, Malawi, Ghana, and Bolivia — coun­tries with very high lev­els of for­eign invest­ment con­cen­tra­tion — had the slow­est per capi­ta growth rates. Let’s apply Occams’ rule, here. Do we need to invoke the ‘con­cen­tra­tion’ (con­spir­a­cy) expla­na­tion to explain this dif­fer­ence? Or could the dif­fer­ences in growth rates be more read­i­ly explained by the obser­va­tion that Kenya, Hon­duras, Malawi etc sim­ply had low­er lev­els of FDI than Sinag­pore, Argenti­na and Thai­land and much less open economies.

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