Book chapter

Foreign Direct Investment and Its Politics in Latin America (2019)

in: Oxford Research Encyclopedia of Politics

Abstract

The open economic policies Latin American countries adopted in the wake of the debt crisis of the early 1980s were expected to bring a variety of benefits. Trade liberalization and privatization make domestic firms more competitive, and deregulation helps to create an efficient business climate. Notably, such policies are also likely to spur foreign investment seeking new opportunities, and Latin American countries did indeed begin to see large inflows in the 1990s. Foreign direct investment (FDI) is thought to be particularly complementary to economic development. Compared to portfolio investment in stocks and bonds, FDI consists of the construction or purchasing of physical assets including manufacturing facilities, retail outlets, hotels, and mines. FDI should spur local economic activity and bring with it jobs and technology transfers. Furthermore, because divestment takes planning and time, direct investment is relatively long-term, so investors are expected to display greater commitments to the economic and political futures of their hosts.As a result of these substantial potential benefits, a body of scholarship has emerged to try to understand the political dynamics of FDI. Is investment more likely to flow to democratic or authoritarian regimes? Are direct investors seeking countries with few labor protections and weak environmental regulations or are they attracted to public investments in human capital? Do they eschew governments with poor human rights records or do they see abusers as potential partners in managing a compliant workforce? What are the effects of FDI flows on the political contexts of their hosts? Among others, these questions have received significant scholarly attention, and while we have learned a great deal about the behavior and effects of FDI, considerable potential remains. Having received massive inflows averaging more than $100 billion between 2000 and 2017 and consisting of countries with broadly similar development trajectories, Latin America offers a rich landscape for such analysis. In particular, finer-grained examinations of FDI to Latin American countries can help us understand how it might affect political systems and which types of investment best complement national development projects. In so doing, studies of FDI flows to Latin America are poised to make major contributions to the fields of international political economy, development studies, and comparative politics.