Reflections on Foreign Investment.doc - REFLECTIONS ON FOREIGN INVESTMENT Stephen Vasciannie It is widely but perhaps not universally accepted that

Reflections on Foreign Investment.doc - REFLECTIONS ON...

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REFLECTIONS ON FOREIGN INVESTMENT Stephen Vasciannie It is widely -- but perhaps not universally -- accepted that foreign direct investment constitutes one of the key drivers of economic development in Jamaica. The central argument is that foreign capital, coming primarily from Western countries, has helped to bolster Jamaica’s post-Independence economic fortunes, and it continues to do so today. The Critics Some analysts have reservations about our placing heavy reliance on foreign direct investment as an engine of growth. For some critics of foreign direct investment, Jamaica’s domestic investment potential is sufficient for our purposes: in short, they say, we have enough local money to generate economic growth and development. If we rely on foreign capital, the critics continue, Jamaica will continue to be vulnerable to the risks of depending on the movement of capital across borders. Among other things, there is the risk that owners of foreign capital may come to exert inordinate influence in Jamaican political, economic and social life, and ultimately, place our “sovereignty at bay.” Also, some people fear that foreign capital can be very fickle. It is suggested, for example, that foreign investors want incentives to come to the Jamaican economy in the form of advantages that are not available to Jamaican investors. Then, when these incentives expire, the foreign 1
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investors will pull out their capital, leaving the country exploited and bewildered. Net Outflow Critics of foreign direct investment maintain further that foreign capital may lead to a net outflow of foreign exchange from the local economy. Thus, it is argued that there will be an initial inflow of foreign exchange, as the investor brings his or her business into operation, but this will change when profits from the enterprise need to be repatriated to the home country – the host country is ultimately said to be the loser in such investment relations. The line of reasoning taken by the critics was once in vogue among development economists and political scientists, with multinational corporations -- as the main vehicles for foreign investment – on the receiving end of stringent, negative strictures in debates about the relationship between the centre and the periphery in global economic affairs. Encouragement Today, however, even if elements of the foregoing analysis have some purchase, most developing countries, including Jamaica, have in place policies that are designed to encourage foreign direct investment. JAMPRO, our national investment agency, is based on the correct premise that investment, whether local or foreign, serves to enhance economic development. 2
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Against this background, it is important that we have a clear idea of the main determinants of foreign direct investment in Jamaica today. In the first place, we should recall that capital is indeed quite footloose – although in the case of foreign direct investment the decision to invest will not be taken lightly.
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