Environmental Engineering Reference
In-Depth Information
6
Foreign direct investment and sustainable
industrial development
Lyuba Zarsky
Introduction
In August 2005, some 300 leaders of the world's biggest corporations gathered in Sydney
for a conference convened by the world's richest man: billionaire, publisher and one-time
US presidential candidate Steven Forbes. While hundreds of noisy anti-globalization pro-
testors climbed fences outside the Sydney Opera House, a visibly irate Forbes told an
evening television reporter that global capitalism was not the problem but the solution to
global poverty. Echoing neoliberal orthodoxy, Forbes proclaimed that, for developing
countries, foreign investment by multinational corporations is '
the
ladder to development'
(emphasis in original). Is he right?
This chapter probes the interface between foreign direct investment (FDI) and devel-
opment - or more precisely, sustainable industrial development. The crisis of global
ecosystems, most pointedly threats of global warming, suggests that ecologically uncon-
ditioned development paths are not economically viable (Millennium Ecosystem
Assessment, 2005). On the other hand, the profound crisis of global poverty makes urgent
the quest for sustainable livelihoods. Despite recent attention to the environment, devel-
opment theory and policy focus mainly on the role of FDI in increasing economic growth.
On the other hand, environmentalists tend to assume that FDI delivers economic bene
fi
ts
and focus on environmental externalities.
The concept of sustainable industrial development used in this chapter is innovative in
two ways.
1
First, it de
nes a development path based on the integration of economic and
environmental objectives, with the latter de
fi
fi
ned as a reduction in the ecological 'foot-
print' of industrial growth. Second, it de
nes the key economic objective not as growth
per se
but as sustainable increases in the local capacities of workers and
fi
rms to 'upgrade'
industry, that is to produce and innovate in ways that can generate sustainable liveli-
hoods. An increase in local productive capacities means that host countries can better
capture opportunities presented by globalization, while being more resilient to its vagaries
- including pullout by MNCs. It also means that host countries have better technologies
and skills by which to improve the environmental performance of industry.
The chapter has two interrelated arguments. First, the primary channel by which FDI
can potentially promote sustainable industrial development is by generating spillovers -
'leakages' of knowledge, technology and expertise to local workers and
fi
fi
rms that gener-
ate social and environmental bene
fi
ts. In later sections, the chapter explores spillovers that
generate two types of social bene
ts: industry upgrading and improved environmental
performance. For both types, the chapter presents an analytical framework to identify
channels for FDI spillovers and then evaluates evidence that spillovers have actually been
captured. Based on the evidence, the chapter concludes with the second and central argu-
ment, i.e. that the capture of bene
fi
ts from FDI for sustainable industrial development is
not automatic but requires strategic and proactive government policy.
fi
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