Benefits and Costs of the Investing Country

Abstract

David Ricardo was a pioneer in the study of political economy and he advocated the creation of an institutional bias in favour of investment at home in preference to investment abroad.¹ Almost one hundred and fifty years later, economists were still contending that foreign investment had pronounced negative features.² In the interim no less a person than John Maynard Keynes argued that foreign investments involved a national cost that the investors themselves would not take into their private calculations, so that some bias in favour of domestic investment was likely to be beneficial for the investing nation.³ The basis of these arguments is nationalistic rather than internationalistic. They were concerned that the external effects of foreign investment ran the risk of depriving the investing country of a resource that it could have used to greater advantage at home. None of the arguments denied that some foreign investment projects might be beneficial for the investing country. The thrust of the arguments must be the first concern of this chapter.