Rethinking Foreign Investment for Sustainable Development: Lessons from Latin America

Panama City, Panama. Photo by Luis Aleman via Unsplash.

After almost 25  years of experimenting with the neo-liberal economic reforms collectively known as “Washington Consensus” policies, Latin Americans are starting to re-assess the merits of these policies at the voting booth. Many newly elected governments are beginning to scrutinize the role of foreign direct investment (FDI) in particular, and some nations have gone so far as to nationalize foreign firms. 

Without endorsing or condoning the actions taken by these governments, this book edited by Kevin P. Gallagher and Daniel Chudnovsky demonstrates that it is rational for governments in the region to re-evaluate the role of FDI for their development paths. The great promise of FDI by multinational corporations is that capital will flow into your country and be a source of dynamic growth. Beyond boosting income and employment, the hope was that manufacturing FDI would bring two kinds of  spillovers: knowledge spillovers to build the skill and technological capacities of local firms, catalyzing broad-based economic growth, and environmental spillovers that would mitigate the domestic ecological impacts of industrial transformation. However, consisting of country case studies and comparative analyses from Latin American and U.S.-based political economists, this volume finds that when FDI did materialize, it often fell far short of generating the necessary linkages required to make FDI work for sustainable economic development.

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