Are North-South Trade Agreements Good for FDI-Led Development? The Case of DR-CAFTA

Abstract

Scepticism towards the impact of Foreign Direct Investment (FDI) on economic development has steadily increased since 2000. As Andrew Sumner shows in the previous chapter, a growing number of countries are enacting policy regimes that are less favourable to FDI than before, protecting strategic sectors and renationalising utilities and other services. Some Latin American countries like Bolivia, Ecuador, Venezuela and Argentina have led this process, dramatically reversing their policy stance of the 1990s.

DR-CAFTA should additionally promote greater levels of foreign and domestic investment, by improving the certainty of these countries’ market access with the U.S., solidifying the broad economic reforms of recent years and spurring further reform efforts. Investors should respond positively to the modernization of key regulations in such areas as trade in services, government procurement and intellectual property rights — including provisions for greater transparency in government regulations — which will be made more credible under DR-CAFTA commitments.

(World Bank, 2005: 1)

Traditionally, countries institute performance measures to spur broad economic growth by creating links between foreign firms and the domestic economy. But this would be prohibited (…) One could argue that agreeing to such measures is the price Central American governments need to pay for receiving more investment. The problem is that the investment may not come.

(Gallagher, 2005)