There is an ongoing debate among economists as to the effect of foreign investment on overall economic growth. Some argue that foreign direct investment leads to an increase in demand for services and goods, and this leads to a boost in output. Others believe that foreign investment does not have this positive effect, and that it tends to have a negative impact on competitiveness. Still others believe foreign investment increases investment dynamism and improves the productivity of the host country's economy. Whether foreign investment has a positive or negative effect on economic growth depends on the kind of foreign investment involved, and the extent to which the public policies of the host country to allow foreign firms to access their markets.
One of the main arguments against foreign investment is the potential expropriation of property rights by foreign corporations. In theory, the workers and the community at large would be entitled to all of the profits from such investment, even if the foreign corporation does not have a majority stake in the firm. Critics of foreign investment warn that a country's citizens could be injured or even killed as a result of foreign direct investment. For example, in the context of mining, it is common for miners to fight against development projects, which may affect them. If a foreign company wants to mine in a particular country, that country could easily restrict such activity. The same could happen with foreign direct investment in the oil and gas sector, where there are serious fears that the rising cost of energy will lead to higher prices and lessening of supplies.
The above scenarios reflect only some of the possible consequences of foreign investment. Many more countries face problems with how foreign investment is handled. Usually the source country is the one that raises the concern. For example, in Latin America, foreign companies are often banned outright from operating in the region, since the Peruvian government threatened to expropriate any corporation that seeks to explore for natural resources in the country. This policy of economic development also bans foreign investment in sensitive sectors such as water infrastructure, telecommunications, and the mining of precious metals like gold and silver. Some other Latin American countries have similar laws, although they tend to be less strict.
Latin America's economic model is known as “follow the money”. Basically, this means that companies do not develop unless there is an injection of outside capital into the economy. If a foreign company invests in a Latin American country, it can potentially increase the nation's economy exponentially because it will be able to tap into new services and jobs that were previously not available. In addition, Latin America has one of the lowest rates of population aging compared to other parts of the world. This means that the creation of human resources and businesses become increasingly important in terms of national economic development.
However, in Latin American countries like Peru, El Salvador, and Honduras, foreign direct investment usually leads to conflict and insecurity. The region's governments have cracked down on companies involved in the export and import of illegal minerals like gold and silver, conflict diamonds, and weapons. In response, many companies have left the country. For example, mining giant Anglo American . . . . . . has recently decided to shut its El Dorado copper mine in Colombia due to political unrest. Although many critics criticize Latin American countries for not living up to their free-market principles, overall the region has been successful in terms of economic development.
Overall, foreign direct investment has been good to Latin American nations. The governments have implemented strong economic policies, especially during the past two decades, which have led to greater prosperity and more stable economic cycles. However, some Latin American countries continue to face problems such as poverty, lack of infrastructure development, and weak legal frameworks. For these reasons, foreign direct investment should still be considered as part of the economic development strategy of developing nations. With globalization expanding its way across the globe, foreign investment will continue to improve the global economic outlook for all countries.