Sustainable Foreign Direct Investments: Regional Development and Transition Economies

We believe we know much about the role of foreign direct investment (FDI) in development, but the present economic and financial crisis has called for a renewed attention towards the role of FDI in the economic development of nations and regions. The instability in the world economy and the pressing need for investment in the developed world have given birth to a much greater economic nationalism that has induced more restrictive approaches to outward foreign direct investment (OFDI) based on the argument that firms should give priority to investing in their domestic market. Many investors have frozen their plans for overseas investments; and some have even disinvested or shifted operations from foreign markets back to their home country or another cheaper location. The number of investors who are actively engaged in reinvesting their profits in host economies has substantially decreased. Profits earned overseas have started to flow back to home countries, which has had a negative effect on the balance of payments of host countries. The trade-off between high growth and vulnerability has shifted towards a much greater economic security and less vulnerability.