Introduction

When people think about globalization, they often first think of the increasing volume of trade in goods and services. Trade flows are indeed one of the most visible aspects of globalization. But many analysts argue that international investment is a much more powerful force in propelling the world toward closer economic integration. Investment often alters entire methods of production through transfers of know-how, technology, and management techniques, and thereby initiates much more significant change than the simple trading of goods.

Over the past years, foreign investment has grown at a significantly more rapid pace than either international trade or world economic production generally. From 1980 to 2000, while the volume of goods traded has increased significantly, foreign investment has grown even faster (See figure below). This investment has been a powerful catalyst for economic growth.

The tremendous growth in levels of foreign direct investment is a recent phenomenon and is one of the most powerful effects—and causes—of globalization. In 1982, the global total of FDI flows was $57 billion. By the year 2007, that number had grown to $1.5 billion—nearly 30 times the level 25 years earlier.

But as with many of the other aspects of globalization, foreign investment is raising many new questions about economic, cultural, and political relationships around the world. Flows of investment and the rules which govern or fail to govern it can have profound impacts upon such diverse issues as economic development, environmental protection, labor standards, and economic stability.

The following Issue Brief will explain the fundamental concepts of cross-border investment, define key terms, and explore the major controversies related to international investment.