Beware of FDI Protectionism
NEW YORK – During their most recent meetings, the G-8 took a strong stance against protectionist measures in the area of foreign direct investment (FDI), echoing calls for a moratorium in such measures issued earlier by the G-20. Both were right to do so.
According to the United Nations Conference on Trade and Development, only 6% of all the changes in national FDI regulations around the world between 1992-2002 were in the direction of making the investment climate less welcoming. That figure doubled to 12% of all regulatory changes in 2003-2004, and almost doubled again, to 21% of all FDI regulatory changes, in 2005-2007. In Latin America, for example, some 60% of all FDI regulatory changes in 2007 were unfavorable to foreign investors.
Overall, countries that had implemented at least one regulatory change that made the investment framework less welcoming in 2006-2007 accounted for some 40% of world FDI inflows during that period – an impressive figure that demonstrates that something very dubious is afoot. And these data refer to formal changes in laws and regulations; no data are available on the extent to which unchanged laws and regulations are implemented in a more restrictive manner, increasing informal barriers to the entry and operations of foreign firms.