I agree with Paul Staines of the Globalization Institute that foreign direct investment generally has positive effects. A good case can be made that foreign investors aid the growth of developing economies by introducing new competition, technologies, business practices, tacit knowledge, etc. However, the data cited by Staines in his latest post are insufficient to draw that conclusion.

The “rough correlation between the preponderance of multinationals operating in a given country and lower poverty indicators” does not imply causation. Lower poverty indicators likely correlate to greater foreign investment because many things that reduce poverty (credible governmental policymaking, an educated and healthy populace, transparent property rights, etc) also increase returns to investments. Does Staines want us to conclude that the United States was poor until a plethora of multinationals invested here?

My affinity to positive conclusions about the desirability of foreign investment in developing countries can’t override my instinct to point out that correlation doesn’t necessarily imply causation.

Jim at Our Word Is Our Weapon points to Kiva, a website that facilitates person-to-person microlending. This form of contribution sounds a lot better than most charitable development programs.

Pollsters say 80% of Russians are against any foreign investment in their country’s military industry, and between 66% and 69% believe foreign capital should be completely barred from the oil, gas, coal, ore and timber industries, other natural resource sectors, and the electricity power industry.

The VTsIOM polling center said one of its polls suggested that 51% of Russia’s population did not want foreign capital going into aircraft manufacturing, 46% into agriculture, and 42% into the food industry.
Some 39% want banks, investment companies, and the communications sector to be out of reach for foreigners.

Between 27% and 33% are opposed to foreign investment in transportation, construction, auto manufacturing, trade, advertising, and marketing. Between 46% and 51% have no objection to foreign investment in those industries but believe it should be subject to quotas.

Very small proportions of Russians are in favor of unlimited foreign investment: 16% are in favor of unlimited for-eign investment in auto manufacturing, 11% and 12% in trade, advertising, marketing, and construction, and a maxi-mum of 9% in other sectors.

VTsIOM said it had questioned 1,600 people in 46 Russian regions. [Interfax, 10.17.2005]

After three years of decline, global foreign direct investment increased this year, with developing nations gaining a forty percent surge in FDI, according to a UNCTAD’s World Investment Report 2005. China, Hong Kong, Brazil, Mexico and Singapore were the top developing FDI recipients, unsurprisingly. While India is gaining, it still lags far behind. UNCTAD thinks that Africa could do a lot more to attract FDI. And this is an odd headline: “Malaysia warms to extraterrestrial investment.”

While trade barriers have fallen over time, barriers to foreign investment remain significant in countries like India and China. That’s why I was happy to read this story:

NEW DELHI – The Indian government looks all set to open up the retail sector beginning with food and a proposal in this regard is expected to go before the Cabinet by next month. The proposal is to allow up to 26 per cent FDI for first two years and subsequently increase it after seeing the results to 49 per cent and then to 74 after three years, official sources said. Commerce Minister Kamal Nath had said on Monday that Government was readying a discussion paper on the issue.

In recent weeks, I’ve been more optimistic about India’s development prospects than those of China. India seems to be opening faster; for example, foreigners may hold a 74% stake in Indian banks, while China currently limits foreign investors to 20%. Moreover, a recent article in Foreign Affairs points to a problem that is most obvious in China:

Conventional wisdom has long assumed that economic liberalization undermines repressive regimes. Recent events, however, suggest that savvy autocrats have learned how to cut the cord between growth and freedom, enjoying the benefits of the former without the risks of the latter.

Another sign of improvement in regards to FDI in India:

At least one Indian communist leader has found the courage to shed his party’s anachronistic mistrust of global capitalism. Buddhadev Bhattacharya, the Marxist chief minister of West Bengal Province, badly wants the Indonesian tycoon Anthony Salim’s $10 billion industrial township project to come to his region. [IHT]

Here’s more on Asian FDI trends.

Here’s a sick way to attract foreign direct investment:

Among the reasons for selecting Brazil as the location for the plant, Lenti said import duties on IT products stand at nearly 85% and vendors have a hard time penetrating the market without local manufacturing processes. “The Brazilian market represents 40% of Latin America and it is one of the markets with the highest projections. Brazil was a must,” he said.

By 2006, the company expects to be producing enough to export products from Brazil, particularly to Argentina, which is part of the Mercosur Southern Cone trade bloc. ViewSonic would enjoy more tax benefits by importing from Brazil rather than from Asia, Lenti said. [BNAmericas]

Edward M. Graham of the Institute for International Economics has a very interesting piece on the South Korean government’s hostility towards foreign direct investment.

While hardcore “anti-imperial socialists” like James Petras might object to foreign investment, today even the North Koreans are welcoming foreign firms. Look for communist-run investment promotion offices in Singapore and Malaysia soon.