Environmental Engineering Reference
In-Depth Information
A volume of case studies in Latin America found evidence that better environmental
management practices were di
used through FDI, including through supply chains
(Gentry, 1998). One example was the cooperation of the US company Chiquita Brands
International, the largest banana grower in the world, in the Better Banana Project.
Started by the Rainforest Alliance, the project uses NGO monitors to certify that growers
meet strict environmental and social standards in the areas of toxic chemical use, pollu-
tion, water and soil conservation, and worker health and safety (Rainforest Alliance,
2000; BSR, 2003).
In India's manufacturing sector, however, Ruud (2002) found no evidence that MNCs
ff
di
used better environmental management practices to local partners, suppliers or con-
sumers. While MNC a
ff
rms, they apparently operate
as 'islands of environmental excellence in a sea of dirt'. He concludes that local norms
and institutions are central in determining MNC practice and that 'FDI in
liates were cleaner then domestic
fi
ows do not
automatically create a general improvement in environmental performance' (ibid.,
p. 116).
One impediment to the capture of environmental spillovers is the tendency of FDI in
developing countries to agglomerate in urban enclaves and rely intensively on imported
components rather than local suppliers. If procurement linkages are thin, there is little
opportunity for MNCs to di
fl
use good environmental practices through supply chains.
Gallagher and Zarsky (2007), for example, found that FDI in the information technology
industry in Guadalajara,
ff
Mexico generated few environmental spillovers to local
fi
rms, primarily because MNC contract manufacturers imported over 95 percent of
components.
Conclusion: enhancing the benefits of FDI
Theoretical frameworks suggest that FDI can potentially generate bene
ts for host com-
munities in the form of knowledge and technology spillovers that promote industry
upgrading and enhance environmental performance. Empirical evidence, however, reveals
a gap between theory and reality and suggests that the capture of spillovers is not guar-
anteed: some countries have successfully captured them, while others have not. The
capture of FDI spillovers requires pro-active government policy, including, inter alia , reg-
ulation of and partnerships with MNCs, worker and supplier training, provision of credit
to SMEs, support for R&D, investment in primary and tertiary education, and science
and technology policies.
Interestingly, many policies that support SME growth can, with only a little e
fi
ort,
support more environmentally sustainable growth. For example, making credit available
to enable SMEs to develop supply capacities could be extended to purchase pollution
control and energy e
ff
ciency technologies. Likewise, support for supplier training could
be designed to encompass both quality control and environmental management.
Most importantly, the capture of spillovers requires that desired goals from FDI be
articulated and integrated into overarching development strategies. To be successful, such
strategies must marry location-speci
fi
c social and economic assets with e
ff
ective pro-
active policies to develop local
fi
rms, both as suppliers and competitors to MNCs. Despite
Mr Forbes's con
dent expectation, FDI can only be a ladder to development if there is a
blueprint that channels it.
fi
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