The Political Economy of Foreign Direct Investment in Developing Countries

We provide an introductory survey of the academic literature addressing the political and economic issues surrounding foreign direct investment in developing countries. We begin with an examination of the motivations behind foreign direct investment before turning to governance issues relating to the attraction and harnessing the consequences of international investments, which extend well beyond questions of employment and economic growth. We then turn to the investment treaty regime and the ways in which it has decreased developing states’ policy spaces. Ultimately, while foreign direct investment has been promoted as a pathway for economic development, it has proven to be a double-edged sword.