Foreign direct investment (FDI)—the acquisition of an ownership interest in a private enterprise—became the dominant route for money flowing from rich to poor countries after the liberalization of global financial markets in the 1970s (Oxfam 2002:11, 15). In 2002 the overseas investments of 64,000 corporations supported 53 million jobs worldwide (UNCTAD 2003:4).

Private investment does not necessarily benefit the poor, however. In the past decade, 80 percent of the private investment in developing countries has gone to just 15 countries—and they are not the world’s poorest countries (World Bank 2005). In 2003, for example, the 50 least-developed countries received only 4 percent of private investment to developing countries (UNCTAD 2004:48; World Bank 2005). The investment environment in poor countries is often unattractive, for they lack the economic stability, coherent legal system, and physical infrastructure that investors seek.

In addition, FDI is typically channeled into infrastructure and larger-scale investments, rather than small or medium-scale enterprises that might benefit the poor. Thus FDI investments may help the poor in the long term, but have not been proven to reduce poverty in the near term. In Latin America, foreign private investment has increased sixfold since 1981 due to expansion in the oil, gas, timber, water, and mining sectors. However, the percentage of the population living below the poverty line has not changed significantly, and the absolute number of poor people in Latin America actually increased from 200 million in 1990 to 225 million in 2003 (World Bank 2004; FAO 2004).

Private investment can help developing nations acquire capital to fund domestic projects, receive new technology and skills, and improve productivity. Without proper regulations, however, it can also increase economic volatility if investors lose interest and pull out. Economic volatility has historically hurt the poor. Since the 1970s, wages have declined in developing countries during economic contractions without expanding to previous levels during periods of growth. An analysis of 32 developing countries experiencing currency crises shows a total wage loss of $545 billion between 1980 and 1998; subsequent recoveries only offset about one-third of this loss (Oxfam 2002:33-36).