Home Country Responsibility: Foreign Direct Investors in Less and Least Developed Countries

Abstract

Inward foreign direct investment (FDI) plays a crucial role in the economic development of less and least developed countries. While these firms have the potential to positively influence economic development in host countries, they may also become dominant. This can lead to various challenges, such as market distortions, competitive challenges for domestic firms, increased dependency of the domestic industry and fiscal policy on large foreign investors, and potentially adverse social and environmental impacts. Ultimately, the quality of the host country’s institutions and governance determine whether inward FDI is a curse or a blessing. This is especially true for natural resource industries. This literature-based theoretical thesis paper argues that the institutional circumstances of least and less developed countries often have negative implications for inward foreign direct investment (FDI), such as weak governance structures and corruption. Therefore, it is imperative that home countries assume responsibility for their investors in these countries so that the right kind of foreign investors lead to a mutually beneficial outcome for investors and the host economy.