Driving and Countervailing Forces : A Rebalancing of National FDI Policies

The threat of rising foreign direct investment (FDI) protectionism is worrying policy-makers, investment promotion agencies (IPAs), and multinational enterprises (MNEs). The Heads of State or Government of the G20 underlined this in their Declaration of November 15, 2008 when they agreed on a one-year moratorium on the introduction of new protectionist investment measures. This was in response to increased incidents of cross-border merger and acquisitions (M&As) being questioned or denied, contracts between MNEs and host countries being renegotiated or cancelled, or laws and regulations being introduced that make the business environment less hospitable for FDI. At the same time, though, the regulatory framework governing FDI in some countries has been made more welcoming, IPAs have been set up in others, and investment flows into some countries have broken previous records. In fact, world FDI flows reached $1.8 trillion in 2007, above the all-time high of $1.4 trillion in 2000 (in current dollar terms).Are these signs of FDI protectionism straws in the wind or do they indicate a storm in the making? Will political risk and regulatory vulnerabilities slow down or even stop the growth of FDI flows, especially in light of the worldwide recession? Will the forces that drive the expansion of FDI continue to trump the risks? Is the regulatory pendulum swinging back from protection and liberalization toward control?