Q. What is the core of your research?
I look at how foreign direct investment(FDI) can contribute to international development, especially in developing economies, by bringing various tangible and intangible assets to the process. In this context, policies that seek to attract FDI, maximise its benefits and minimise negative effects, as agreed to by both host and home countries, are very important.
In this framework, a significant development taking place now involves negotiations in the World Trade Organization (WTO) for an Investment Facilitation for Development (IFD) agreement. While the negotiations have been concluded, the agreement has not yet been integrated into the WTO rulebook. Broadly, this process is aimed at establishing consistent global benchmarks on investment, getting developing countries technical assistance and capacity building support, which can also help members attract more high-quality investment, setting up an advisory centre on international investment law and dealing with topics like investor-state disputes, etc.The 50th G7 Summit is taking place now — it could result in a series of economic decisions on China. How would that impact the global FDI landscape?
If the G7 should decide to encourage a further de-risking of the economic relationships between their nations and China, that would imply foreign affiliates of Western or multinational enterprises making products in China feeling it prudent to diversify away now. Moving these production facilities out of China would benefit Vietnam, Indonesia, Laos and Cambodia — but there would also be a huge opportunity for India in terms of attracting such investment. This is in line with India’s government policy to get its companies linked to international supply chains.
You research sustainable investment — how do you define this?
The starting point for this idea is the recognition that investment is necessary to advance economic development — investment is not everything but everything often translates to nothing without suitable investment. The challenge is to maximise the positive effects of such FDI and minimise its negative effects. To arrive at sustainable FDI, countries must seek to avoid the type of investment which can be damaging to them, either environmentally or in any other way, and which can increase positive effects in areas a host country thinks are most important to it — these can include having investing companies establish linkages with domestic firms that help them upgrade and get access to the world market, bringing in investment that is at least carbon-neutral in its impacts or makes a positive contribution towards the environment, ensuring investments where working conditions are fair and safe, seeking FDI which leads to exports, thus generating foreign currencies, etc. If foreign affiliates meet some of these characteristics, while remaining commercially profitable, that becomes sustainable FDI.
Is this beginning to take hold in economies?
Certainly. You see several companies which invest in foreign countries paying some attention to these principles now. Some companies insist, for instance, that the electricity they obtain in foreign locations comes from renewable energy sources. The US Inflation Act contains conditions for investors that benefit from it which relate to standards of work. Many foreign affiliates of MNCs source locally now — this is both environmentally less damaging and an important strategy to limit risk from potential global supply chain disruptions.
Given how strongly climate change impacts developing economies in particular, can FDI be used for better environmental protection?
There are several ways to do this. International investment treaties, and bilateral ones in particular, could be interpreted in a manner that gives special protection to investments which are climate-neutral. Future investment agreements — like certain ones India is currently negotiating — could give protection in the extreme case only to companies that make a positive contribution to avoiding climate change. Home countries, where MNCs are headquartered, could give special support to businesses investing abroad which are making a positive contribution to climate change. Host countries could also require that foreign affiliates are at least CO2-neutral in their footprint. A number of regulatory policies are thus possible to link FDI with pro-environment measures.
Given the linkages between global trade and the climate crisis, could the G7 meeting focus on this area as well?
While I doubt it will enter the specifics, the G7 could say it encourages those groups involved in FDI to ensure that such investment helps the avoidance of climate change. Then, the finer details would have to be worked out.
Views expressed are personal.
