Partnerships for the Goals

Living Edition
| Editors: Walter Leal Filho, Anabela Marisa Azul, Luciana Brandli, Pinar Gökcin Özuyar, Tony Wall

Partnerships for Development and the SDG17: Role of Foreign Direct Investment

  • Cláudio Castelo Branco PutyEmail author
  • Douglas Alencar
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-71067-9_6-1

Definition

Foreign direct investment, according to the benchmark Organization for Economic Cooperation and Development (OECD) definition (2008), is a “category of cross-border investment made by a resident in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.” The motivation of the direct investor may be the search for new markets, access to natural resources, logistic advantage, or simply lower production costs, either in the form of cheaper labor or taxes.

A higher level of foreign direct investment means that additional capital is injected and, depending on the sector, is likely to have an impact on its growth rate, as it is equivalent to foreign savings diverted from the investing economy into the domestic market. Thus, if FDI is not counterbalanced by various forms of remittances, it can be a robust engine for structural transformation in underdeveloped economies.

Introduction

The process that led to the establishment of the 17 Sustainable Development Goals (SDGs) from the Rio+20 conference in 2012 to the United Nations (UN) General Assembly in 2015 raised a somewhat obvious question: how to finance the ambitious initiative?

In July 2015, almost 150 countries met in Addis Ababa in the third conference Financing for Development, dedicated to discuss questions specifically related to the amount, origin of resources, and instruments necessary to promote development with universal commitment to all aspects of sustainability, particularly addressing the structural causes of climate change, promoting respect for human rights in line with international standards, and considering countries belonging to different income groups.

The Addis Ababa Conference resulted in an Action Agenda (UN 2015) that recognized that the vast majority of the investment for developmental purposes was public in the majority of countries. Notwithstanding this fact, and as a result of the negotiation process that led to the final resolution, the Conference also called on private business activity, particularly private international capital flows to address sustainable development challenges. These investments are perceived in the Action Plan as crucial in critical areas where investment gaps are resilient and in poor- and middle-income countries, with weak or no integration at all to international financial markets.

Foreign direct investment (FDI) is thus mentioned by the Addis Ababa agenda, as a necessary element to fill the savings gap that leads to investment levels far below the minimum required to meet the national development effort.

This entry is organized as follows. In the next section, we continue the aforementioned debate on the place of FDI in the SDG17. The following section discusses the role of FDI from a theoretical perspective in order to identify the assumptions and conditions that make FDI important for economic development. The final section presents stylized facts of FDI in developing regions of the world, followed by the conclusion.

Partnerships for a Change: FDI and the SDG17

The SDGs take on the Addis Ababa agenda in two important assumptions: the recognition that public funds available at the national level are insufficient for the attainment of investment levels compatible with the sustainable development goals. In addition, that in order to meet the 16 SDGs, a renewed effort of global coordination bringing together national states, the international community, civil society, and the private sector is crucial. This concept is thus represented by the SDG17, labeled “partnership for the goals.”

Assuming that only through increased international cooperation each of the 16 SDGs is attainable, Goal 17 is a call for a new institutional arrangement based aimed at more collaboration and less competition between nations and organizations. In this sense, multi-stakeholder partnerships to foster capacity building, increase international trade, share technology and information, and mobilize financial support are seen as a necessary condition for the success of the initiative.

SDG17 has 19 targets (UN 2018) organized around five topics: finance, technology, capacity-building, trade, and systemic issues like institutional coherence for policy purposes. The targets include questions ranging from macroeconomic stability to technological transfer and from international trade facilitation to targeted capacity development at the national level.

In what concerns financing issues, SDG17 targets domestic resource mobilization, including means to improve at the national level the taxation system and revenue collection, and in addition calls for developed countries’ commitment with larger official development assistance.

The partnerships promoted by SDG17 also include assistance to developing countries in attaining long-term debt sustainability through coordinated policies aimed at reducing debt distress, as well as adopting and implementing investment promotion regimes for least developed countries.

Finally, it also acknowledges the necessity to mobilize additional financial resources for developing countries from multiple sources, particularly through FDI and official development assistance (ODA).

According to the UN’s Report of the Secretary-General (UN 2018), SDG17 targets still face many challenges that reflect the shortcomings of the global institutional framework and point to the relevance of renewed partnerships between international institutions and multiple stakeholders at the national level in order to make SDGs a reality.

In 2017, net ODA totalled $146.6 billion, a decrease of 0.6% from 2016 in real terms. As a matter of fact, in 2016, remittances to low- and lower-middle-income countries represented more than three times the amount of ODA received by their countries. ODA for national planning and therefore capacity-building at the national level has not grown since 2010 (UN 2018).

Debt service as a share of exports of goods and services in least developed countries (LDCs) increased from 2011 to 2016. In this 5-year range, that went from 3.5% in 2011 to 8.6% in 2016.

Despite the developing regions’ share of world goods exports has grown to an average annual rate of 1.2 between 2001 and 2012, it has declined for two consecutive years: from 45.4% in 2014 to 44.2% in 2016. For LDCs, the share of world merchandise exports declined from 1.1% to 0.9% between 2013 and 2016, compared to the rise from 0.6% to 1.1% between 2000 and 2013 (UN 2018).

Finally, the UN secretariat points out that “development partners need to do more to align their support with governments’ national development strategies and results frameworks, particularly in fragile countries, respecting the country’s policy space and leadership in establishing its own path towards sustainable development” (UN 2018).

FDI and Development in Economic Theory

FDI, as mentioned before, is a category of investment made by a resident in one economy with the objective of establishing a lasting interest in an enterprise that is resident in an economy other than that of the direct investor. FDI is registered in the system of national accounts as one of the subcategories of the so-called financial account of the balance of payments (BP) although direct investment income is a subitem of investment income of the current account (IMF 2009).

The system of national accounts traditionally differs direct investment from portfolio investment by the degree whereby investors influence the direct management of the enterprise. In most countries, including the USA, the benchmark is considered to be a minimum of 10% of the ordinary shares (i.e., voting power) of the investment company. In fact there is a range of forms of influence, in which companies may either be branches of a multinational enterprise that hold total control of the direct investment enterprise, some subsidiary where over 50% of the voting power is held, or finally some associate firm where the a 10–50% voting power is exerted by the parent firm (OECD 2008).

As mentioned before, direct investment figures are registered in the financial account of the balance of payments as established by the International Monetary Fund (IMF 2009) and are complemented by OECD’s Benchmark definition (OECD 2008). Whereas the former sets the standards for typical national statistics of direct investment, the latter provides comprehensive and more detailed figures decomposed into three subcategories:
  1. (a)

    Investment positions: providing information on the total stock of investment in equity and debt made abroad and received from abroad. This information allows for structural analysis that is normally missed by flow measurements as they account for the FDI positions accumulated over time.

     
  2. (b)

    Direct investment financial transactions: showing the net inward and outward investments.

     
  3. (c)

    Associated income flows between enterprises (OECD 2008): providing information on the earnings of direct investor and companies in the host countries, either in the form of equity (profits and dividends) and debt (basically interest from intercompany loans, etc.).

     

Although not always mentioned in policy documents, the reliance on FDI for developmental purposes depends on theoretical assumptions that are crucial for its conclusions.

There are several views on foreign direct investment. We will discuss here three different views on FDI as they focus on the reasons behind the flow of FDI from a particular country to other nations. We will consider the neoclassical view, the expansion and absorption of assets, and the post-Keynesian theories.

The Neoclassical Theory of FDI

According to neoclassical development theory, in a case where a country has a low level of savings, this country could demand external savings to promote investment and thus economic growth. The argument is that countries that have abundance of capital have lower marginal productivity compared to developing countries. The opening of the capital account would thus allow the equalization of the marginal productivity of capital around the world. Likewise, trade liberalization, by stimulating competition would boost productivity, including labor productivity.

In a current account equilibrium situation, capital inflows produce accumulation of reserves whose sterilization cancels out any effect on aggregate savings and growth. For this reason, it is proposed that the country that keeps current account deficits should implement controls and restrictions on foreign capital inflows, especially short-term capital (FRANCO 1998, p. 141).

According to Franco (op. cit.), external savings should be used for industry modernization as observed in the technological revolution after the World War II that was mainly produced by an increase in foreign investment by multinational enterprises (MNEs). Leveraging the industry requires external savings in order to finance domestic demand (FRANCO and FRITSCH 1989).

However, two problems related to this liberalizing prescription can be highlighted: first, the high volatility of international financial flows that offer no steady path for north-south investment, and the other that countries cannot borrow in their own currency, these loans being in foreign currency, which creates further balance of payment restrictions for growth (BRESSER; GALA 2007).

Expansion and Absorption of Assets Theory

According to this theory, a variety of factors explains FDI growth in recent decades. First, national firms compete for the international markets. However, in order to transfer the production to other countries, costs of foreign production should obviously not outweigh its revenues. Thus, internationalization of production of services and intermediate goods needs to deal with (a) the issue of uncertainty of producing abroad, (b) the necessary development of skills to exploit economies of scale, and (c) the externalities in the market to which the firm will transfer FDI (Dunning 1988).

Regarding production location, this theory argues that producers prefer to produce intermediate products in other countries, a process facilitated by the formation of economic blocs that lead to the reduction of international barriers, transportation costs, as well as government intervention that may contribute to the growth of FDI flows (Dunning 1988).

One important factor for understanding the growth of the internationalization of companies, thus the increase in FDI, is the corporate integration of enterprises, which means internal integration, and this element is further reinforced by regional integration among countries. Integration of corporations can collaborate with regional integration, which can collaborate with the economic integration of enterprises, in this way, reducing disparities, and market failures within regions and countries that receive investments from these firms (Dunning 1988).

The integration of the countries promotes the integration of firms, since this integration facilitates the reduction of transport costs and inputs; moreover, the most efficient companies tend to capitalize more adequately on market failures (Dunning 1988).

In addition to these features related with corporate integration and regional integration, other external factors influence firms’ internationalization.

Political aspects, such as stability of central government, degree of bureaucracy and nature of industrial policy, balance of power between urban and rural sector, trade unions, lobbying of large companies, situation of the Central Bank, and other financial institutions, also play a role on FDI.

Legal factors also influence the internationalization of production, such as copyright protection, contract laws, legal provisions on the relationship between foreign firms and local subsidiaries, industrial relations legislation, compensation for damages, consumer rights, and environmental problems.

Social, cultural, and ideological factors are also linked to the internationalization of companies, such as cultural heritages, religion, labor systems, social norms, and attitudes of agents that may affect the country’s industrial policy and may also have an impact on external economic relations, fiscal, educational, employment, and security policies (Dunning 1988).

Finally, firm’s internal factors also contribute to its expansion. Internal factors involve managerial capabilites of firm’s overall activities. Organizational strategies are crucial in the process of company expansion, given the complexity of production process located sometimes in other regions and countries. The direct implication is that cultural, and economic organization contributes to firm expansion, as well as the locus of internal decision-making, ability to innovate, interactions/conflicts between stakeholders, and contractual relations.

Thus, the eclectic paradigm for Dunning is primarily a model that relies on a wide diversity of disciplines, and ideas to explain the internationalization of firms, however, provide a consistent theory. One of the main assumptions for this author is that technological advances lead to a wide range of factors affecting firm internationalization (Dunning 1998).

The Post-Keynesian View

Kregel (1996) argues that conventional theory does not consider that developing countries’ openness to FDI could lead to the denationalization of the local industry, with great pressure on the exchange rates and on the domestic money market. Primary income on FDI, which covers payments of direct investment income, income on equity (dividends, branch profits, and reinvested earnings) and income on the intercompany debt (interest), is payed with foreign exchange currency.

Moreover, even when the profits are reinvested in the form of FDI via capital account, those profits would not necessarily consist of an actual new inflow of foreign currency but could be obtained through occasional imports of capital goods and inputs, which will represent actual outflows. As a result, it may decrease foreign currency reserves and causes negative impacts on the sector producing these goods, if the bias to import them is larger than national firms.

For Kregel (1996), when the FDI exceeds a certain amount in its relation to national income, investors can increase their expected returns, due to foreign reserves and exchange rate risks. In this case, transnational companies (TNCs) will no longer reinvest their profits and may interrupt new FDI. Therefore, without these new capital inflows, to what one could add new remittances related to capital already invested, one can once again generate imbalances in the BP.

Even Dunning (1994) argues that FDI can cause internal changes to recipient countries, as it may cause a change in the consumption pattern of the population, increasing imports and generating economic growth restrictions.

Therefore, the internationalization of an economy and its opening for foreign firms will not necessarily be compatible with the required behavior or adjustments in the BP. In a world with both floating exchange rates and interest rates, such equilibrium will depend on a complex interaction between exports and imports of goods and services and remitted incomes, earnings, and capital sent and received from abroad.

International investors are nonetheless creating ways to protect themselves against the possible exchange or interest risks, by hedging their positions in different markets. Therefore, Kregel argues that FDI is one of the most expensive sources of investment, since its required return is generally higher than the interest rates of other types of finance (Kregel 1996).

Note that, in empirical terms, FDI can consist of portfolio investments to a greater or lesser degree, and its separation between productive (greenfield) or unproductive (brownfield or portfolio) investments is difficult. Moreover, even greenfield investments can be overstated, since part of it is often directed to other functions than new investments.

For example, in the 1990s in Brazil, FDI contributed little to the growth of industry, since these investments were directed to the purchase of existing assets in Brazil, i.e., to brownfield investments. Thus, there was a low ratio between “foreign investments” (FDI) and the growth rate of the gross fixed capital formation. Briefly, Brazil was one of the countries that absorbed more FDI, but this had no major effect over economic growth. Furthermore, much of this FDI was directed to investments in the service and non-tradable sectors, providing virtually no gains in exports, despite the huge increase in pressure on the BP, because of remittance of profits, interests, royalties, capitals, etc.

This analysis can be extended to Latin America in general, since countries such as Mexico and Argentina received great amounts of FDI, but these capital flows also did not bring about higher investment and economic growth rates. Since 1990 the rate of gross fixed capital to gross domestic product (GDP) in Brazil, Mexico, and Argentina has been around 20%. Thus, it is evident that with the end of the privatization process in the three largest Latin American economies, FDI flow would diminish, with the aggravating factor of payments of dividends, which increases deficits in the balance of services (Laplane and Sarti 1999).

The denationalization of many Brazilian firms has not, as was expected by some economists, contributed to Brazilian exports, since many of these firms were transformed into affiliates of foreign companies expanding their import coefficients, adding to the formerly described pressures to external imbalances. For Aurélio (1997), the uptake of “external resources” as a strategy for development should be temporary. Even when this strategy initially works, it may lower “domestic savings,” i.e., reduce the liquid outcome of the current account (“foreign savings”), which compensates the decrease in domestic savings (public and, mainly, private), with no impact on total savings because of its zero or negative impact on domestic investment.

One way to assess whether these imbalances cause adverse impacts, i.e., whether they limit economic growth, is by investigating if economic growth is (or was) restricted by the BP, following the seminal work of Thirlwall (1979). Based on the proposition that current account deficits cannot be financed indefinitely, Thirlwall argues that the shortage of foreign currency sets a limit to the rate of expansion of aggregate demand and, consequently, the rate of income growth. Grounded on the simplifying assumption that foreign capital flows and terms of trade are constant, many authors claim that the long-term income growth rate of a country is highly connected to the export growth rate, with due regard also to import income elasticity. Models that are more complex also consider net inflows of capital (Thirlwall and Hussain 1982; Moreno-Brid 1998–1999, 2003; Barbosa-Filho 2002, 2004; Lima and Carvalho 2009).

An Overview of the Empirical Evidence

Multilateral institutions have increasingly called upon private capital mobilization as a cornerstone of economic development. The final documents of the three conferences on financing for development and the United Nations Millennium Declaration recognize the importance of greater FDI to developing regions of the world, particularly in Africa.

Likewise, in the last 30 years, countries in Asia, Africa, and Latin America have increasingly liberalized their economies in order to attract international flows of capital, particularly FDI. These changes in investment environment involved lifting legal controls on capital through comprehensive changes in national laws. Notwithstanding this fact, empirical evidence from various studies show that results are far from the expected by reformers.

In fact, since the mid-1980s, there was a considerable increase in financial flows in the global economy, and FDI has accompanied the trend. However, a considerable portion of FDI’s flow (roughly 68% on average from 1970 to 2017) consisted of investment in developed industrial economies (Fig. 1), a great part of it being cross-investment among northern developed countries.
Fig. 1

FDI Flows (1970–2017), Current US$ millions

Table 1 shows the participation of FDI flow by groups of economies. We observe that, in spite of the pattern of concentrated FDI in developed countries, there was indeed a long-term tendency toward deconcentration, with a growing share of FDI in developing economies, whose overall participation in the total flows was on average 24.51% in the 1970–1979 decade and reached 42.98% in the 2010–2017 period.
Table 1

FDI flows as a percentage of world total

Average

1970–1979

1980–1989

1990–1999

2000–2009

2010–2017

Developing economies (%)

24.51

25.60

30.14

29.66

42.98

 Excluding China (%)

24.51

23.50

22.75

24.66

34.91

Developed economies (%)

75.49

74.40

68.97

67.21

52.85

We have omitted figures for “transition economies”

Source: authors’ own elaboration on UNCTAD (2018) data

However, if inward FDI in China is excluded from our figures, the flows of direct investment show more modest figures, not presenting relevant changes on its share of the global figures until the 2010–2017 interval, where some relevant investment in East Asian countries contributed for the increase in the observed figures (34.91% of total inward FDI).

These evidences are observed in Fig. 2, where the concentrated growth of FDI in developing countries is in great part an Asian and, particularly, a Chinese phenomenon. FDI in Africa has in fact decreased in the long run, and Latin America and the Caribbean have roughly kept their share in world inward FDI.
Fig. 2

FDI Flows by Region (Percentage of world total)

However, with the growth in FDI in nominal terms, FDI flows in Latin America have been the largest components of financial flows, and, according to ECLAC (2015) figures, in absolute terms, net FDI flows to the region averaged US$ 2.6 billion in the 1970s, US$ 38 billion in the 1990s, and US$ 86 billion in the 2000s. In 2012, FDI reached an all-time high of US$ 198 billion. In relation to total regional flows, FDI increased from 36% in the 1980s to 54% in the 2000s.

Africa, likewise, received US$ 1,1 billion in the 1970s and US$ 31 billion in the first decade of the twenty-first century (with US$ 67 billion in 2015) (Table 2).
Table 2

Latin America and the Caribbean: foreign direct investment and other financial flows (% of total flows)

 

1980–1989

2000–2007

1990–1999

2008–2009

2010–2013

2000–2013

Foreign direct investment (net)

36

44,3

58,2

49,8

47,7

54

Private portfolio flows (net)

2,1

11,7

−4,2

4,1

20,5

4

Official development assistance

19,5

12,3

6,4

5,3

4,3

5,7

Other official flows

26

12,2

−0,4

6,6

4,2

1,9

Remittances (received)

16,4

19,6

39,9

34,2

23,3

34,4

Source: Economic Commission for Latin America and the Caribbean (ECLAC) (2015)

Empirical evidence therefore indicates that the role of FDI in an agenda for sustainable development faces many challenges due to its characteristics.

Firstly, foreign direct investment is concentrated at regional and sectorial levels. As previously noted, FDI not only reproduced over the decades a pattern of global distribution, but also in every region, it is concentrated in a few developing countries and not rarely avoids countries most in need.

In Latin America and the Caribbean (LAC), the concentration is quite clear, both geographically and by sector. South America traditionally takes the largest part of FDI flows to the region, accounting for 79% of total FDI into Latin America and the Caribbean, while Central America receives only 5% of all inward FDI in the region. FDI goes mainly to the larger markets; Brazil, Mexico, Chile, Colombia, Argentina, and Peru account for 85.4% of total FDI flows to Latin America and the Caribbean.

In Africa the same occurs. FDI flows to Africa are heavily concentrated, with the top 10 recipient countries accounting for roughly 75–80% of the total inward FDI. Countries like South Africa, Morocco, Angola, Nigeria, Egypt, and Algeria have accounted 45% or more of the FDI inflows in the continent.

At the sectorial level, FDI is also highly concentrated, addressing mostly the extractive industries. Industries like mining, oil, and resource-based manufacturing have greatly attracted FDI in developing countries. Likewise the services sector includes utilities like electricity, gas, water, and transportation.

In LAC, the Economic Commission for Latin America and Caribbean (ECLAC 2014) estimates that in 2013, the natural resources (hydrocarbons and mining sectors), manufacturing and services sectors received 26%, 36%, and 38%, respectively, of total FDI flows. For Brazil, Mexico, and Argentina, Alencar and Scarano (2010) argue that the FDI has not contributed to economic growth, since it has been directed to already existing firms. Moreover, the FDI has not contributed to reduce pressure on balance of payment, since it increased the amount of resources that Latin American countries have to send abroad though the income balance (Alencar and Strachman 2014).

In Africa, FDI flows are heavily concentrated in the primary sector, accounting for nearly 55% of total flows to Africa in the first decade of the twenty-first century and reaching almost 80% in some years (UNCTAD n.d.).

Another aspect of the discussion around the role of international capital flows comes from the fact that they are often short-term oriented. The increasing financialization of investment, with the creation of special vehicles – like equity funds and hedge funds – investing in different classes of assets, may blur the very distinction between FDI and portfolio investment and aggravate the short-term bias in foreign investment. Hence, not only portfolio flows but also FDI tends to be procyclical, which can aggravate business cycle fluctuation.

FDI can have limited impact on innovation and transferring of technology, which may impede local knowledge and labor productivity. As the structuralist school (Prebisch 1951) has long pointed out, the pattern of international demand tends to specialize the region in commodities production and foster low-productivity sectors with limited capability of technological dissemination in the economy.

Finally, FDI produces substantial profit repatriation and this represents a form of financial leakage with consequences for balance of payment sustainability and economic growth. In Latin America and the Caribbean, FDI profit repatriation has represented more than half of net FDI inflows on average since the 1990s and is a major contributor to current account deficits (ECLAC 2015).

FDI, Economic Development, and the SDG17

The challenges for capital mobilization and particularly the use of FDI for developmental purposes come from the fact that private capital is obviously driven by the profit motive and its objectives quite often do not coincide with investment in areas that are crucial for full human development, as represented by the idea of sustainable development.

The global social and institutional arrangements necessary for capital mobilization with purposes of human development remain as the most relevant question brought about by SDG17, particularly when it deals with the so-called systemic issues. The question is not new and was addressed in many forms during the twentieth century – being the Bretton Woods system one the most notorious initiatives – and it continues as relevant today as it was in the aftermath of World War II.

The debate at the UN has recognized that domestic capital mobilization is the main driving force of development (ECLAC 2015; UN 2015, 2018), and that involves mobilizing national savings to the purpose of socially relevant investment. In spite of the theoretical differences and the inconclusive empirical support for a unilateral causal nexus between savings and investment, there is a broad acceptance of the idea that a growing economy yields higher income and, therefore, higher savings. Likewise, the fact that economic theory does not offer an obvious causal relation between saving, investment, and growth that generates a clear-cut set of economic policies with well-defined instrumental and target variables – savings or growth – does not preclude the importance of savings for economic development. It raises, on the other hand, the question on how to create a growth environment in countries where income is low enough so that saving mobilization not occurs at the further expenses of the well-being of the majority, typically through diminished household consumption expenditure.

Therefore, the challenges for domestic capital mobilization make the role of external savings, in the form of FDI or ODA, quite relevant for a large group of countries. Bearing in mind the aforementioned caveats, an enabling external environment is crucial to create the conditions for foreign investment with developmental profile.

This enabling external environment, the outcome of a global economic order oriented for growth and social inclusion, should address the unevenness of the international financial system, particularly its governance mechanisms in order to give proper importance to middle income and poor countries. The international financial system has been unable to grant the minimum conditions to finance production and has served rather as a mechanism to produce and propagate instability in the world economy.

A financing mechanism of production should also incorporate the difficult – although crucial – quest for productivity catch up and technological transfer. A central concern is the constitution of regional and international systems of innovation and more inclusive and strategic participation in global value chains through partnerships in education, research, collaboration, and firm joint ventures that could allow developing nations to increase its productivity standards and innovation initiatives.

Finally, the international trade system has to strengthen its multilateral institutions, and they should also recognize, both in governance and policy, the asymmetries between developing and industrial countries. Promotion of market access and stability of commodity prices are crucial conditions for an enabling external environment consisted with SDG17.

Conclusion

Private capital mobilization to promote sustainable development requires that enough incentives be created in order to promote interest for human development issues. This would need to involve changes in public policy and legal framework in order to integrate a sustainability framework to the practice of investment, which involves a clear political dimension. Thus, government interventions will be needed to create appropriate motivations for private capital to contribute to the SDGs.

Recent research has shown that an enabling environment is crucial for private investment even in countries which already attract FDI. Therefore, the public sector has a crucial role in fostering and promoting good practices, a clear legal framework, transparency, and a proper regulatory environment. It can also provide funding for sectors that are crucial for SDGs but do not attract sufficient private flows.

All these challenges have shown that, ironically, the public sector, like in the East Asia experience, plays a vital role and is not replaced by the autonomous mobilization of private capital for developmental purposes. Quite the contrary, the interplay between private capital and well-designed public policy may be the secret for a more efficient integration of FDI into sustainable development goals. As SDG17 correctly points out, systemic issues of national institutional arrangements therefore become crucial for the coherent implementation of policies for development.

Cross-References

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Authors and Affiliations

  • Cláudio Castelo Branco Puty
    • 1
    Email author
  • Douglas Alencar
    • 1
  1. 1.Graduate Program in EconomicsFederal University of ParáBelémBrazil

Section editors and affiliations

  • Monica Thiel
    • 1
  1. 1.School of Public Administration and School of Business AdministrationUniversity of International Business and Economics & China University of PetroleumBeijingChina