The systemic aspect of foreign direct investment: Side effects and spillovers toward social order

This paper discusses the concept that foreign direct investment (FDI) improves social conditions in emerging nations. It is widely assumed that spillover effects, such as technology-transfer and knowledge diffusion improve a host country’s economic conditions. But do these spillovers also serve to rebuild the host countries’ social order and contribute to improved living standards, especially when they occur in emerging nations? Can those spillover effects be conceived through the theoretical foundation of systems theory? How does systems theory handle environments like FDI, social order and investment law? The paper intends to provide answers to both the practical and the theoretical issues. The literary overview is kept to the essential and only a few widely known sources that report on all sorts of FDI are given. This leaves room for a wider discussion of how a systemic approach would work, and for an empirical account of the mechanisms inducing FDI/impact on economic development and social order. It is hoped that, with this, the systemic view on FDI can be promoted and endorsed.

The objective of the paper is to contribute facets that are needed for a systems theory view on FDI, with a special view on how FDI affects social order in developing countries. The focus being on spillover effects, the paper intends to show how systems theory can improve the analysis of spillover effects. The paper is qualitative research. The bottleneck in this area of research is that appropriate metrics are not available, let alone reliable time-series data for developing countries. So a quantitative investigation must be left out of the paper and is open for further stages of this work. Still, the case examples given on achievements in Sub-Saharan Africa show which social order variables change when FDI occurs. Thus, the paper, from a methodological perspective, is a review of concepts (FDI, social order, ethical foundations of legal frameworks) that are not always connected to each other in traditional research.

JEL Codes: F5 International Relations and International Political Economy, F55 International Institutional Arrangements, and O14 Industrialization; Manufacturing and Service Industries; Choice of Technology