Recent Developments on Foreign Direct Investment

Resumen

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In this essay we aim to give an overview of the recent developments on Foreign Direct Investment regulation. Specifically, we will be focusing on the influence that Foreign Direct Investment (hereinafter, FDI) has had in many developing countries hosters of investment flows. We will also be focusing on the conflicts of interests between developed and developing countries in their efforts to regulate and establish a legal framework for FDI.

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Extracto

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Recent Developments on Foreign Direct Investment

Introduction

Taking into account the rapid increase of investment flows in the last two decades, the regulation and policies regarding FDI are of such importance that nowadays they are considered amongst the most contentious issues in the international policy arena. The contribution of FDI in the globalisation process is crucial and, to a certain extent, we can describe FDI as one of the most important vehicles of globalisation throughout the world, spreading economic interdependence between sovereign states and eventually turning the world in a big and unified market. According to Carlos M. Correa1, FDI flows expanded at an unprecedented rate during the 1990s thus becoming the most visible and prominent manifestation of the increasing global integration of economic activity. Indeed, Correa goes on explaining, if compared to the average annual growth of 'trade in goods and services of about 6-7 per cent over the 1990s, FDI inflows grew at an average annual rate of 20 per cent over 1991-95 and at 32 per cent during 1996- 2000'(Correa 2003: 7). The result is a huge increase of FDI inflows, primarily fuelled by cross-border merging and acquisitions, that goes from US$ 159 billion in 1991 to a whopping 1.27 trillion in 2000 (see table in Correa 2003: 8-9).Thus, we may establish a direct link between FDI and the multinational enterprises (MNEs) as most of the foreign investments are carried out by multinationals seeking economic benefits in their investments abroad. MNEs often spread their production capacities and resources over many countries, seeking a beneficial treatment of their allocation in the host country. This happens in number of different ways. For instance, they may take advantage of the host country"s intellectual property regulation, or the labour regulations of another. In this respect, we might use the terms FDI and MNEs interchangeably.

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