Negative Consequences Of Foreign Direct Investment

1066 Words Oct 21st, 2015 5 Pages
NAFTA supporters, on the other hand, argue that foreign direct investment in Mexico has been higher after NAFTA, but it must be recognised that it also has had a number of negative consequences. One of the most important negative consequences is that the flow of foreign investment has been focused on the creation of companies producing goods or services directly exported to the USA (maquiladoras) (Ruiz 2015: 44). Investment flows have been generated primarily to produce goods or services for the USA; this type of foreign direct investment is vertically integrated, it is fuelled by low trade costs given the unskilled and cheap workforce, it is a type of investment in which developed countries use developing countries as a re-export platform or as leverage in the search for new markets, creating economic dependency relationships (Calderon and Hernandez 2011: 114-116). Another consequence is that domestic industry has deteriorated by imported inputs and competition from foreign direct investment, due to the displacement of local companies that were unable to compete with multinational corporations, and thus generating job loss. Another important negative consequence to consider is that the money of foreign investment has led directly to the wealthiest regions of Mexico, since they are the ones who have the education, skilled labour, transport infrastructure and necessary communications to facilitate product export to the USA, which has intensified disparities and inequalities…
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