International Financial Institutions, Environmental Standards and Foreign Direct Investment

The ongoing debate over the environmental impacts of private foreign direct investment (FDI) has focused primarily on the role of multinational corporations (MNCs) in implementing diverse standards in countries at varying levels of social, economic and political development. Since the international debt crisis of the late 1980s foreign investment flows have become increasingly important, financing current account deficits as well as sustaining economic development. The flow of FDI to developing countries and emerging markets now exceeds official development assistance (ODA) by a factor of five, (Jeucken p. 50) peaking at $220 billion in 1999. Therefore, the environmental impacts of FDI deserve at least as much attention as has been devoted to the impacts associated with structural and project lending by the International Monetary Fund, the World Bank and other, mutilateral and bilateral forms of ODA.

The “race to the bottom” hypothesis, played out in discussions about the appropriate relationship between trade and environmental protection has its counterpart in the literature on FDI. While the relationship between trade and environment is heavily focused on by official actors, nation-states, regional trading blocs and global regulatory institutions such as the WTO, the environment-FDI debate focuses primarily on non-state actors, including MNCs, NGOs and the international financial institutions (IFIs) that facilitate flows of FDI to developing and emerging markets.

The paper proposes to explore the role of IFIs in FDI and the implications their role has for the relationship between investment and the environment.  For the complete document, please see the attached PDF version.