The Political Economy of Foreign Direct Investment

Topics: European Union, United Kingdom, Macroeconomics Pages: 3 (795 words) Published: March 25, 2006
The Political Economy of Foreign Direct Investment

Toyota in France

The French have always been somewhat ambivalent toward foreign direct investment. In the 1960s and 1970s, successive French governments used a mixture of socialist and nationalist rhetoric to spurn foreign investment proposals by companies such as General Motors. These governments took the view that direct investment by foreign multinational enterprises would damage the French economy. Government officials believed strongly in the need for France to build its own indigenous enterprises. They argued that the economic power enjoyed by foreign multinationals gave them the ability to dominate any markets they entered, at the expense of locally grown enterprises. Successive socialist governments in France expressed a desire to control economic activity through extensive planning and the nationalization of private businesses. Letting foreign multinationals into the country was thought to be inconsistent with this goal.

France's policy toward inward foreign direct investment began to change in the early 1980s. Although France's socialist president, Francois Mitterrand, remained suspicious of direct investment by foreign firms, his successive administrations reduced the bureaucratic obstacles to foreign investment and created a more coherent mechanism for luring inward investment. The change in policy reflected the growing realization that inward investment could have substantial benefits for the French economy, including the creation of jobs, the transfer of valuable technology, and the increase of exports that would bolster France's balance-of-payments position. The shift toward a more liberal attitude accelerated under Mitterrand's successor, Gaullist president Jacques Chirac. Chirac, who espouses a free market philosophy with a unique French twist, has made encouraging inward investment a priority. The results have been striking. According to recent UN data, in 1996 France attracted $21...
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