Home Globalization- 3. Investment instead of migration

Effects of globalization

Investment instead of migration

Globalization could reduce the need for emigration if companies and financial institutions chose to invest more in developing countries and thus created more employment.

Financial investment can create growth and employment but can also expose developing countries to huge risks. Such investment takes place through private lending, either through banks, or through companies selling bonds to raise cash. Another option is portfolio investment. The risks became all too clear in Asia from 1997 when the collapse of the Thai baht sent shock waves around the region. The banks called in their loans and investors sold their shares.

A more stable form of capital flow is via foreign direct investment by transnational companies. This now accounts for the bulk of finance to developing countries. and can reduce the need for migration in two ways. The first is by providing employment. In fact, however, transnationals are very capital-intensive and employ relatively few people directly themselves. The most labour-intensive production generated by transnationals in developing countries is in export-processing zones such as the maquiladora factories along the Mexican-US border which in in 2001 exported $77 billion worth of goods — about half of Mexico's total exports.

The other longer-term benefit of foreign direct investment in developing countries could be to boost economic growth, not just by providing capital but by transferring technology, training local people, and creating export sales. In practice however investors try to avoid risk and are more likely to follow growth than to stimulate it. As a result, most foreign direct investment is highly concentrated and often goes from one developed country to another. It seems unlikely therefore that either trade or investment will create sufficient employment to absorb the millions of people who enter the workforce each year.

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Worker in maquiladora, Tijuana

Worker in maquiladora factory in Tijuana, Mexico
Photo: Andy Wallis