In 2012, financial crises abound, creating a worldwide problem and fueling the fear of an alleged fast-approaching Armageddon. Professor Ken Rosen of the University of Alabama School of Law argues one solution to our international contagion comes from, ironically, the source of the problem: the inexorable interdependence of the world’s nations. Specifically, Rosen suggests foreign direct investment [FDI] can ameliorate the global economic downturn. In his presentation, “Collaboration and Indirect Support of Foreign Direct Investment”, he argued the importance of FDI in growing the world’s suffering economy. Further, because our current framework for fostering FDI is flawed, he suggests a remodeled international approach that complies with global accounting standards and builds trust between nations.
Based on past events, I absolutely agree with Professor Rosen that FDI is an excellent means to revamp the economy. As business tycoon Warren Buffett said, in terms of economics, “the rearview mirror is always clearer than the windshield.” The impressive financial growth the world has seen in Asian countries was (and is) a direct consequence of foreign investment. If history really does repeat itself, the international community would do well to optimize FDI’s growth ability.
Further, the time is ripe for maximizing those macroeconomic benefits of FDI. Because of China’s great economic momentum, firms are now looking abroad to “upgrade technology, move up the value chain, and augment their management and staff base.” Chinese firms are expected to allocate $1-2 trillion (USD) to FDI worldwide in the next decade. Turning our global economy around would really help quash those pesky apocalyptic rumors: the time to improve FDI is now.
There is certainly room for that improvement, too. Rosen asserts the current issue with FDI incentivizing is its limitation to national subsidies. Setting the amount of the subsidy is problematic because the magic number is difficult to pinpoint and subsidizing foreign investment—as opposed to local—is politically unpopular. Even assuming the country gets it right, investors look to more factors than just tax breaks and grants in deciding where to devote their resources. 
Rosen’s four-point plan for maximizing the benefits of FDI is theoretically sound but practically unlikely. He proposes (1) global accounting standards and more transparency generally; (2) “ex-ante” dialogue instead of the creation of policy in the “crucible of scandal”; (3) international harmonization of securities regulations; and finally, (4) private reinforcement. Clear rule of law formulated in a calm,,rather than financially panicked,,forum would better guarantee the certainty that so many businessmen find lacking in foreign markets. However, creating international accounting standards and harmonizing global securities regulation is, quite simply, no easy feat. But considering our financial plight, it might just be worth it to save the world (from a recession).
This presentation was given at the North Carolina Journal of International Law and Commercial Regulation - North Carolina Journal of Law and Technology 2012 Symposium.
The New Gold Rush, M&M Network and Global Markets (June 23, 2011), http://www.mandmglobal.com/insight/features/23-06-11/new-gold-rush.aspx.
See Jocelyn Rappaport, Offering Solutions to Financial Crises in Emerging Economies, George Mason University News (Nov. 8, 2010), http://news.gmu.edu/articles/4586 (parenthetical).
Thilo Hanemann & Daniel H. Rosen, Perspectives on topical foreign direct investment issues by the Vale Columbia Center on Sustainable International Investment, Vale Columbia Center (Oct. 24, 2011), http://www.vcc.columbia.edu/content/chinese-fdi-united-states-taking-how-maximize-its-benefits.
For example, Rosen explains that legal infrastructure of the state and general investor financing problems play a significant role in determining how much and where to finance.
See Kenneth M. Rosen, “Who Killed Katie Couric?” And Other Tales from the World of Executive Compensation Reform, 76 Fordham L. Rev. 2907, 2927 (2008) (“scandal may not be the best of crucibles in which to craft reform.”).
Posted by Kathleen D. Bradshaw on Mon. February 27, 2012 8:58 AM
Categories: Investment in Foreign Markets