Protectionism backfires on FDI

A recent issue of Columbia Perspectives on FDI asks whether foreign direct investment subsidies are good or bad for the countries that offer them (see Investment incentives and the global competition for capital).

BEIJING (Reuters) - China's foreign direct investment inflows fell 3 percent in the first half of 2012 from a year earlier, with inflows falling for six consecutive months, as concerns over Europe's debt crisis and a slowdown in China's economy dampened investment appetite. Wang Chao, a vice commerce minister, said on Monday that the country drew about $59.1 billion in foreign direct investment (FDI) between January and June, the official Xinhua news agency reported. ...

The much-denied hard landing in China is now underway with weakening data everywhere one looks. Today there is More Bad News For China as FDI Falls. Foreign direct investment in China fell to the lowest level in two years in July, fueling concern that waning confidence in the nation’s growth prospects may restrain any economic rebound.

The Wall Street Journal reported on Friday that:

Jim Trippon submits:Although Washington has been complaining mightily about China stealing American jobs, the evidence is quite compelling that the Chinese bear little blame. While US firms struggle to find capital, foreign investment into China is recovering at a healthy rate.China attracted $14.02 billion of foreign direct investment in the first two months of this year, up 4.9% from a year ago.

Andrew K Rose, Tomasz Wieladek, 29 May 2011During the global crisis governments made substantial interventions in financial markets, particularly in the banking sector. This column argues that one unintended consequence of bank nationalisations has been to reduce cross-border lending. After nationalisation, foreign banks reduced British lending as a share of total lending by about 11 percentage points and increased interest rates to UK residents by 70 basis points.

Over the past decade foreign direct investment (FDI) has become a major force in developing and transition economies. In 2010 the volume of FDI to developing and transition economies for the first time exceeded the FDI to rich economies.