Foreign Direct Investment in Latin America: An Analysis of its Characteristics and Efficacy :: Essays Papers

Foreign handle Investment in Latin America An Analysis of its Characteristics and EfficacyINTRODUCTIONForeign Direct Investment, or FDI, is defined as an investment made by a outside(prenominal) person or organization in a particular verdant (http//www.encarta.com). In the mid-nineties, FDI became integral to the growth of Latin America. Traditionally, flows of FDI have constituted a small percentage of the resources flowing to ontogeny countries (UNESCAP, 162). However, this characteristic changed in the 1990s when the share of FDI to developing nations rose from 12.7% in1990 to 41.5% in 1997. Proponents of FDI, point to its ability to promote technological innovation in the host country as surface as its tendency to increase employment. Critics of FDI claim that it has increased lesser-developed nations dependence on orthogonal capital pushing them further into debt. In this paper I plan to explore both sides of this issue as well as the particular characteristics of F DI flows into Latin America. FDI GOOD?The theory behind attracting FDI in developing countries is quite simple. Supposedly, FDI facilitates technological transfer and encourages more efficient care practices (Fernandez, 12). This self-reliance is based upon the classical economic theory that with technological transfer and innovation, these advances ordain filter into other areas of the economy. This is known as spillover effects. Foreign Direct Investment generates employment in the short-term by inundating the market with monetary capital that must be maintained through labor. This can pervert the impact of the regular business cycle on the labor market (UNESCAP, 184). FDI can also improve the productivity of the rest of the economy. This has been especially unbowed when FDI has been applied to the privatization of previously state-owned public enterprises. The result is great efficiency and greater supply of services and products (UNESCAP, 185). During the 1990s , many state-owned enterprises were privatized, resulting in the generation of massive amounts of fiscal capital. The largest such takeover was that of Aueropuertos Argentina by firms from the United States and Italy worth a total of $5,134 million (USD) (UNESCAP, 175). FDI BAD?Firms invest in other countries in the interest of gaining a stable long-term role in the management of the enterprise where the funds are invested (UNESCAP, 162). Therefore, FDI can imply long-term foreign ownership and control over domestic firms.