The spatial embeddedness of foreign direct investment

The spatial embeddedness of foreign direct investment: FDI in social, cultural and political contexts
Responsable: Arnt Fløysand
Institución: Departamento de Geografía, Universidad de Bergen
Financiamiento: The Research Council of Norway
Duración: 2006-2008
Sitio web:

In financial analysis foreign direct investment (FDI) is defined as a cross-border investment where an investor intends to establish a lasting financial interest and exert an effective influence on the activities of the investment object. Our point of departure is that research on FDI should go beyond econometric measures of narrow data sets. We propose that FDI should be seen as consisting of capital, actors and knowledge, or what we call the capital-actor-knowledge complex. Each of the pillars has an accompanying analytical approach: capital-development analysis; actors-social field analysis; knowledge-discourse analysis. The methodologies can be illustrated by the following figure. The inner core is the capital-actor-knowledge complex and the outer rim is the accompanying analytical approaches.

An approach to FDI through the capital-actor-knowledge complex allows an investigation of its effects that go beyond quantitative economic analysis and into the terrain of socio-cultural processes. This is what we label complex dynamics; those extending econometrics and involving the major contemporary social questions like regional development, poverty and power. This project plans to link three sub-projects departing from the capital-actor-knowledge complex to investigate how the complex dynamics of FDI are embedded in spatial scales. This can be approached from different angles, and the sub-projects will highlight specific relations within the capital-actor-knowledge complex (see figure below).

The concept of FDI has an inherent connection to space and spatial processes. By this we mean that an understanding of the concept is impossible without paying attention to its spatial extension and the contingency of its effects upon local, regional or national conditions. Per definition, an investment does not become an FDI before it crosses international borders. And the explosion of FDI during the past three decades is seen as a reflection of the “time-space compression”, or globalization, of economic processes. In the words of Rugman, globalization occurs when multinational enterprises engage in foreign direct investment to create subsidiaries which add value across national borders.” Hence FDI is tied to both socio-political transformations and space. We argue that the geographic approach to studying FDI is vital in understanding the social implications of its enormous growth.

The assumption that underpins much policy towards FDI in developing countries – that FDI is always good for a country’s development and poverty situation, and that a liberal policy towards multi-nationals is sufficient to ensure positive effects, fails to be upheld by the data. We have argued elsewhere that the interaction between FDI and local conditions, and thus, the outcome of FDI on regional change, depends on interactions between the nature of the FDI and conditions at the local scale. The link between FDI and the actual welfare for the local population is a complex one. In our view, the weakness of the literature is that it fails to capture the complexity of FDI and its effects at different scales.