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supported by several international organiza- Yet, the crux of this analysis is that when
tions, such as the World Bank, the International many governments begin to implement FDI-
Monetary Fund, the Organization for attraction strategies, ostensibly for the pur-
Economic Cooperation and Development, and poses of development, this not only creates
the World Trade Organization. These agencies inter-state competition for FDI but also fur-
warned that developing nations had to lower ther drives the process of economic global-
or remove economic barriers, or otherwise face ization. With states competing for FDI, firms
losing out in the potential growth that would will have an even wider choice over where
come from global free trade (Moran, 1998). and how they might utilize their investments.
In this light, the neo-liberal ideology Viewed from a Marxist perspective, economic
would argue that FDI is an efficient means globalization is therefore an extension of the
for generating economic development and logic of capitalism. Capitalism is driven not
growth in the local economy. For example, only by the entrepreneurial drive of firms, but
FDI can bring the generation of employment, also with the complicity of states. Although
foreign currency earnings, and the transfer of some would argue that economic globaliza-
technology or managerial techniques to the tion has been underway for hundreds of
local area (see Lall, 1996). These would be years, as manifested through colonialism and
some of the main reasons why states might empire-building across the world, many
attempt to attract FDI intentionally. However, believe that the 1980s was when it became
given that there are often several countries dominant. Also, with rapid advancements in
courting the same investor, competition is technology and logistics, and with the rapid
generated. At the most basic level, states integration of financial markets around the
would be competing on the basis of ‘compar- world during the decade of the 1980s,
ative advantage’, which refers to the pre- economic globalization finally ‘took off’
existing and inherent aspects of a country with governments and corporations partici-
that would be of interest to potential pating through international trade and FDI
investors. For example, some countries might (Sklair, 1994). All of these factors worked
have an abundance of natural resources, together to cause an increase in the annual
while others might have large domestic con- volume of global FDI inflows at an average
sumer markets. However, to enhance its com- of 28% per annum between 1986 and 2000
petitive position, a state might offer financial (see UNCTAD, 2004: 3).
and tax incentives or even direct subsidies Although overall the volume of FDI
over and above granting access to resources increased significantly between 1970 and
and markets. Studies have also shown that 2000, the reality is that competition for FDI
states might seek to ‘manipulate’ access to has also been increasing (Nunnenkamp and
local resources and markets to enhance Spatz, 2002; Oman, 2000). This is mainly
competitiveness. For example, governments due to many governments, especially after
may negotiate with local labour groups to 1980 and the fall of communism in Europe,
establish an attractive wage package that viewing FDI as a potential source of domes-
would encourage transnational corporations tic economic growth and development (Lall,
to locate operations in the country. Also, 1996). There are concerns that this competi-
some states might invest in national educa- tion between national (and even sub-national)
tional, health, housing and infrastructure governments would lead to ‘a race to the
projects to improve the quality of human bottom’, where society would suffer at
capital in the country so as to attract FDI (see the hands of transnational corporations. For
Sklair, 1993, 1994). As will be discussed fur- example, some governments might intention-
ther in the next section, manipulated advan- ally suppress wages or remove worker pro-
tages are commonly known as ‘competitive tection rights in order to attract foreign
advantages’. investments. Other observers have predicted