Modernization vs. Dependency Revisited: Effects of Foreign Direct Investment on Food Security in Less Developed Countries1

Abstract

Food security is of great urgency in the developing world. Many countries have sought to attract foreign capital to promote development and reduce hunger. But how do foreign direct investment (FDI) inflows affect food security? Extant research based on dependency and modernization arguments or the globalization debate offers contradictory theoretical predictions and produces conflicting evidence. We resolve the puzzle by disaggregating FDI. Foreign investments in distinct economic sectors have disparate attributes, producing different welfare consequences for food security. We test our arguments using the food security indicators recommended by the Food and Agriculture Organization (FAO) and new data on sector-specific FDI inflows to 56 developing and transition economies between 1981 and 2001. We find highly robust evidence that manufacturing FDI improves food security. We also find that primary-sector FDI reduces food security and that service-sector FDI has an ambiguous but sometimes negative effect. These results are largely robust under different statistical methods, additional control variables, and alternative measures of food security. Our research offers policy lessons for how to improve food security and demonstrates how to resolve theoretically the longstanding dependency-modernization controversy that has informed the contemporary debate between the pro-and anti-globalization camps.

Protecting policy space for public health nutrition in an era of international investment agreements

“…17,18 Investment in agricultural land is now high. In 2011, the High Level Panel of Experts on Food Security and Nutrition reported that international investors had leased or purchased an estimated 50 to 80 million hectares of land in middleand low-income countries, about two thirds of them in sub-Saharan Africa.…”

“…17 Governments promote investment in agricultural production through various types of subsidies. As is true of other incentives to attract FDI, such subsidies and other measures to promote food security can lower the cost of producing the products that are of greatest concern in a public health nutrition context.…”

Modeling the influence of foreign investments on food security based on panel cointegration models

“…Foreign investment is mainly concentrated in export industries and has weak links with the internal market, which also has a negative impact on domestic production. In the short term, FDI can create economic growth, but the long-term effects of the penetration of foreign capital are negative [12].…”

Two essays on foreign direct investment and food security in Nigeria: A mixed methods approach.

“…For hunger to reduce, it is important that adequate infrastructure, relevant policies, and implementation of policies that boost rural and local food production be put in place. The activities of agricultural FDI has shown that the mechanisms through which PFDI operates in many oil rich developing countries like Nigeria, often exacerbates food security as the government action is sometimes misplaced as they focus on FDI into the oil sector to the detriment of the agricultural sector (Mihalache-O'keef & Li, 2011).…”

“…Such a mechanism, in the view of Mihalache-O'keef & Li (2011), is a recommended pathway that alleviates hunger.…”