The Social Impact of Foreign Direct Investment

Multinational enterprises (MNEs) have become one of the key drivers of the world economy and their importance continues to grow around the world.

The increased influence of OECD-based MNEs in developing countries is particularly striking. Today, developing countries account for almost one third of the global stock of inward foreign direct investment (FDI), compared
to slightly more than one fifth in 1990.

The increased role of FDI in developing and emerging economies has raised expectations about its potential contribution to their development. FDI can bring significant benefits by creating high-quality jobs and introducing
modern production and management practices. And many governments have developed policies to further promote inward FDI.

However, the activities of multinational enterprises abroad have also aroused much controversy and social concerns. For example, MNEs have been accused of practicing unfair competition when taking advantage of low wages and labour standards abroad. In some cases, MNEs have also been
accused of violating human and labour rights in developing countries where governments fail to enforce such rights effectively. In many OECD countries, civil society has appealed to MNEs to ensure that internationally-recognised
labour norms are respected throughout their foreign operations.

This Policy Brief presents the main insights from OECD work on the social impact of inward FDI in host countries. It looks at how much MNEs contribute to better working conditions in host countries and what governments, in both
home and host countries, can do to promote good work practices by MNEs.