Inappropriate foreign investment

Experimental visualization of narrower problems
Other Names:
Disruptive foreign investment
National insecurity due to excessive foreign investment
Vulnerability of countries to destabilization from foreign investment

In the case of developing countries in early years following independence, foreign investors were, apart from being viewed as extensions of colonialism, accused of engaging in various practices which were said to diminish their contributions to the host economy and sometimes resulted in their costs exceeding their benefits. These practices were said to include evasion of controls on the repatriation of profits and the stifling of indigenous competition. Foreign investors were also seen as operating under terms of one-sided agreements negotiated with colonial masters.


Foreign investment has the net effect of draining considerable sums of capital out of developing countries and in the long run tends to slow economic growth down rather than to boost it. The reasons include: profits flow back to the rich countries, local firms and craftsmen lose their livelihood while the investment creates only few jobs, the transferred technology has little use outside the foreign subsidiary and it imports required inputs. Often corporations are allowed, for a certain period of time, to operate without paying any taxes and afterwards they can use the transfer pricing mechanism to avoid taxes.


Problem Type:
D: Detailed problems
Date of last update
02.01.2018 – 17:47 CET