Why Attracting FDI to the US and UK is Important Globally

This has been a year when sentiment about the effects of globalization and trade has come to the fore, with headlines in the US and the UK capturing a feeling that the current system benefits the wealthiest, while a large chunk of the population are left behind. Whatever your views on this argument, there is an irony that by those countries becoming more inward facing, it is the less developed nations, whose population are less economically secure, that may be most affected.

The US Case

An obvious example is Mexico. Should NAFTA be scrapped, while this may bring some manufacturing jobs back to America, the effects on existing workers in Mexico are not take into account. Given the US position as a global leader, while this may not be of interest during a domestic election, the issue should not be forgotten by the international development community.

NAFTA is not the only example where a change in US policy could have significant international development implications. In the five years since federal body Select USA was formed, my view is that FDI attraction activity across the country has gathered some real momentum. The organization has prompted US cities, regions, and states to develop their own FDI programs, while think tasks such as Brookings have also become heavily involved. With FDI now becoming a more visible tool of economic development, this can also promote donor agencies such as USAid to place emphasis on FDI attraction within their international development programs.

The increasing visibility of FDI can also further stimulate US companies to continue to invest (and export) overseas themselves. So, a policy change that discourages FDI from US companies will lead to fewer foreign companies investing in the US. Clearly the existing administration is aware of this, as Select USA’s 2017 Summit has been scheduled already, pre-empting any future decision from the next President.

The UK Case

The UK example is similar: what was arguably already the farthest reaching Investment Promotion Agency in the world, UK Trade and Investment, has been rebadged and repositioned as its own government department. Therefore, whatever the Brexit outcome, the UK government appears to suggest that the international agenda remains key to British economic prosperity.

Government Decision Making

This blog does not seek to argue the case for NAFTA, TTIP, or CETA etc. But it does make the point that while the future of such deals are decisions for governments, there has to be dimension that considers the effects to third party countries. A weak EU, or UK, or US economy, will have its own internal challenges, but it’s also likely to create a global effect – these developed countries are after all the largest outward investors in the world. This is not to say that investment from developed to developing economies can never have a negative dimension, but on balance, decisions that lead to reductions in global FDI (and trade) must surely take into account global, not just domestic considerations.