Economic reform and foreign direct investment in Latin America

Abstract

After almost 25 years of experimenting with the neo-liberal economic reforms collectively known as ‘Washington Consensus’ policies, Latin Americans are starting to re-assess the merits of these policies at the voting booth. Whereas one of the key policies of the ‘Washington Consensus’ package was the liberalization of investment regimes, many of the newly elected governments are beginning to scrutinize the role of foreign direct investment (FDI) in their countries. Indeed, some nations have gone as far as to nationalize foreign firms. Without endorsing or condoning the actions taken by these governments, in this paper we argue that it is quite rational and very justified for governments in the region to re-evaluate the role of FDI for their development paths. Our exhaustive review of the literature on FDI in Latin America during the reform period shows that very few nations in the region actually received significant amounts of FDI as a result of reform, and that when FDI did materialize, it often fell far short of generating the necessary linkages required to make FDI work for economic development.