Syndicate content

Poverty

The false debate: choosing between promoting FDI and domestic investment

Cecile Fruman's picture

Should we focus our efforts on foreign investment or domestic investment?” Policymakers in developing economies often ask this question when the World Bank Group advises them on how to improve their countries’ investment climate or investment promotion efforts. Our answer is: They do not need to choose one over the other. In order to grow and diversify, an economy needs both domestic investment and foreign direct investment (FDI).  The two forms of private investments can be strong complements.
 
Recognizing the Potential Benefits of FDI
 
The economic benefits of FDI were identified a long time ago. A Harvard Business School paper published 30 years ago summarized the benefits of FDI based on an extensive review of economic literature (Wint, 1986). In short: Benefits traditionally attributed to FDI include job creation, transfer of technology and know-how (including modern managerial and business practices), access to international markets, and access to international financing.

Granted, some of these benefits also occur thanks to domestic investment. For instance, domestic investments create jobs in a host economy – usually many more than FDI. However: What FDI does well is enhance or maximize some of the benefits already generated by domestic investments in a developing economy.
 
To stay with the example of job creation: Foreign firms might not create as many jobs as the domestic private sector, but they often create better-paid jobs that require higher skills. That helps elevate the skills level in host economies. The same can be said for other FDI benefits. For instance, more advanced technologies and managerial or marketing practices can be introduced in a developing economy through foreign investment, and at a much faster rate than would be the case if only domestic investment were allowed. Moreover, through partnerships with foreign investors who have existing distribution channels and commercial arrangements around the world, developing countries’ firms can benefit from increased market access.



In China, millions of rural residents each year migrate to cities to seek work. As they find jobs in modernizing industries, they gain the skills they need to earn higher incomes. In this photo, an employe in Chongqing is learning higher-level computer skills. Photo: Li Wenyong / The World Bank
 

In the poorest countries, an acute climate risk

Sri Mulyani Indrawati's picture

A man walks through a flooded rice field. © Nonie Reyes/World Bank

For the first time in history, the number of people living in extreme poverty has fallen below 10%. The world has never been as ambitious about development as it is today. After adopting the Sustainable Development Goals and signing the Paris climate deal at the end of 2015, the global community is now looking into the best and most effective ways of reaching these milestones. In this five-part series I will discuss what the World Bank Group is doing and what we are planning to do in key areas that are critical for ending poverty by 2030: good governancegender equality, conflict and fragility, preventing and adapting to climate change, and, finally, creating jobs.

Seawater is rising in coastal Bangladesh. The soil contains more and more salt as the sea encroaches on the land. As a result, farmers see their crops declining. Communities are hollowing out, as working-age adults move to cities. Freshwater fish are disappearing, reducing the amount of protein in local diets. And in the dry season, mothers have to ration drinking water for their children – in some areas, to as little as two glasses a day.
 
Climate change is finally being taken seriously in the developed world, but it is generally seen as a future threat, to be managed over the coming years.  For poor people in poor countries, particularly those living along coastlines, in river deltas, or on islands, it is a clear and present danger – and increasingly, a dominant fact of life.

Three must-haves to improve services for the bottom 40 percent

Hana Brixi's picture
Community at discussion of water supply and sanitation. Kaski, Nepal.
Photo: © Simone D. McCourtie / World Bank

Improving services for the bottom 40 percent of the population requires more than policy reforms and capacity building. The Inclusive Growth conference suggested that Bank operations may need to further encourage transparency of state performance, help internalize citizen feedback in the public sector, and empower local leaders to experiment and inspire others.
 
What will it take to engage citizens as a force toward improving services for the bottom 40 percent? 

In the session, “How to Make Services Work for the Bottom 40 Percent ”, Robin Burgess, Stuti Khemani, Jakob Svensson, drawing on their recent research, showed that quality services and prosperity requires citizen action to incentivize politicians and public servants.

Over 20 years after the Paris Protocol, is it time for a new deal for Palestine?

Nur Nasser Eddin's picture
 Ryan Rodrick Beiler l Shutterstock.com

As we do every weekend, my friends and I headed to the city of Ramallah in the West Bank one recent Sunday to have breakfast and enjoy the warm days of the Palestinian Spring at a local café. As we sat there discussing our lives, we couldn’t help but hear a conversation taking place at the table next to us, where five young Palestinians were complaining about the lack of jobs. The group of friends, it seemed, were all fresh university graduates who had been looking for work for months with no luck. What grabbed my attention most was that they were all blaming the Paris Protocol for their situation—saying “it has put the Palestinian economy back years from where it should be!”

Pathways to Prosperity: An e-Symposium

Ambar Narayan's picture
#Pathways2Prosperity Banner

 

Blog #4: 1 in 3 has piped water, 2 of 5 kids stunted

 
India is home to the largest number of poor people in the world, as well as the largest number of people who have recently escaped poverty. Over the next few weeks, this blog series will highlight recent research from the World Bank and its partners on what has driven poverty reduction, what still stands in the way of progress, and the road to a more prosperous India.

We hope this will spark a conversation around #WhatWillItTake to #EndPoverty in India. Read all the blogs in this series, we look forward to your comments.


The rapid decline in consumption poverty over the past two decades was accompanied by improvements in other dimensions of welfare. But progress has been mixed and much still remains to be done. India’s performance on key indicators of well-being lags behind countries at similar stages of development. And country-level estimates mask wide disparities between states.

3 reasons why ‘Housing for All’ can happen by 2030

Gloria M. Grandolini's picture


By 2030, almost 60 percent of 8.3 billion people will live in cities, according to UN estimates.

Almost 1400 of the world’s cities will have half a million or more inhabitants.

Cities can connect people with opportunities, incubate innovation and foster growth, but they require urban planning, infrastructure, transport and housing.

Pathways to Prosperity: An e-Symposium

Peter Lanjouw's picture
banner

 

Blog #3: Poverty down, but 1 in 2 hangs by a thread

 
India is home to the largest number of poor people in the world, as well as the largest number of people who have recently escaped poverty. Over the next few weeks, this blog series will highlight recent research from the World Bank and its partners on what has driven poverty reduction, what still stands in the way of progress, and the road to a more prosperous India.

We hope this will spark a conversation around #WhatWillItTake to #EndPoverty in India. Read all the blogs in this series, we look forward to your comments.


The sharp decline in poverty in India has been accompanied by a strong pattern of upward mobility, leading to an emerging middle class. Education, urban residence, and wage work have contributed to this higher-than-average upward mobility and lower downward mobility.  Yet, a vast share of the population remains vulnerable to slipping back into poverty, suggesting that gains against poverty need to be deepened and made more secure.  Scheduled Tribes stand out as a group that has fallen further behind, with one-third stuck in chronic poverty.

How we’re fighting conflict and fragility where poverty is deepest

Sri Mulyani Indrawati's picture

View from cave, Mali. © Curt Carnemark/World Bank

For the first time in history, the number of people living in extreme poverty has fallen below 10%. The world has never been as ambitious about development as it is today. After adopting the Sustainable Development Goals and signing the Paris climate deal at the end of 2015, the global community is now looking into the best and most effective ways of reaching these milestones. In this five-part series I will discuss what the World Bank Group is doing and what we are planning to do in key areas that are critical for ending poverty by 2030:
good governance, gender equality, conflict and fragility, creating jobs, and, finally, preventing and adapting to climate change.
 
By 2030, more than half of the world’s poorest people will live in very poor countries that are fragile, affected by conflict, or experience high levels of violence
 
These are places where governments cannot adequately provide even basic services and security, where economic activity is paralyzed and where development is the most difficult.  It is also where poverty is deepest. The problems these countries face don’t respect borders. About half of the world’s 20 million refugees are from poor countries. Many more are displaced within their own country.

Why cultural diversity matters to development

Ede Ijjasz-Vasquez's picture
Culture is an essential component of each and every society. It is the fabric that weaves communities together and gives them their unique identity. Acknowledging and factoring in cultural diversity is essential to working efficiently with our client countries and adapting interventions to the local context.
 
Embracing cultural diversity, especially through the preservation of cultural heritage assets, also brings tangible economic benefits. Preserving or repurposing historic landmarks in downtown cores, for instance, can make cities more vibrant, attract new firms, and foster job creation. In addition, the preservation of cultural assets plays a key part in supporting sustainable tourism, a sector that has significant potential for reducing poverty in both urban and rural settings.
 
On this World Day for Cultural Diversity for Dialogue and Development, Ede Ijjasz and Guido Licciardi tell us more about the role of culture and its importance to the World Bank's mission.
 
If you want to learn more about this topic, we invite you to discover our latest Sustainable Communities podcast.


Pages