Concerns about Shifting Production Due to Foreign Investment
Concerns about Shifting Production Due to Foreign Investment

A concern raised by some critics of globalization is that corporations in wealthier countries are shutting down their higher cost domestic manufacturing operations and sending them overseas to developing countries (a.k.a. outsourcing), where they can take advantage of lower wages and, for example, less restrictive environmental regulations. This is alleged to result in a switch by corporations from domestic production toward a greater reliance on imports, and to cause higher unemployment domestically. These critics charge that workers overseas may be exploited as a result of this shifting production, and that moving manufacturing operations overseas lessens the competitiveness of the domestic economy.

While it may be true that some companies have moved their production facilities for these purposes, and the origin of manufactured goods consumed in United States has shifted considerably toward foreign sources, these kinds of investment activities comprise only a small percentage of total investment.

The figures below shows direct investment from the United States to other parts of the world from 2009 to 2012. It is clear that manufacturing is not the sector most targeted by US investors.

 Of course, the fact that such an overwhelming percentage of the sales resulting from U.S. foreign direct investment takes place among developed countries, or that foreign production is overwhelmingly used for consumption local to that country, does not mean that concerns about FDI in developing countries are of no consequence. However, when one thinks about the forces driving globalization and the decisions to invest in overseas production, these figures can help keep matters in perspective.

Foreign investment can also raise concerns of a somewhat more nationalistic nature. Foreign investment, particularly when it involves control of prominent sectors of a nation’s economy, individual companies, or even landmarks such as buildings, can raise alarms that foreign entities may be taking control of resources that are critical to a nation’s identity or even security. This can lead to suspicions that the foreign owners may not have the best interests of the domestic society in mind.

These fears about foreign control can be particularly serious in developing countries, although even wealthy, developed countries are not immune to these concerns. In the 1980s, for example, many Americans became worried about foreign investment into the United States. The sale of prominent American landmarks such as Rockefeller Center in New York City to a group of Japanese investors made many Americans believe that they were losing ownership of their own economy.

Questions for Discussion:  

  1. How do you evaluate the benefits or detriments of foreign investment? How much weight do you give to the concern that FPI can lead to economic upheaval? Do you find the argument that foreign investment amounts to “buying” another country? What controls could be put in place to counter this concern?
  2. What relationship do you see between FDI and employment? Looking at the United States as an example, have you noticed a shift in the distribution of jobs over the past decade? What jobs are leaving the United States? Where are these jobs going? What jobs are replacing them?

 

7 Source: http://www.bea.gov/international/di1fdibal.htm

 

 

 

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