Despite the advantages, FDI is not without its critics. It provides opportunities for multinational firms to minimize their taxes by resorting to transfer pricing. It undermines the strength of labour unions, especially those representing an unskilled workforce, as multinational firms can withdraw from the market if pushed too hard. And it raises questions over the potential political impact of multinationals on the sovereignty of nation-states. The host government has no guarantee that corporate decisions that are in the best interests of the global company are also in the best interests of the country. While it is possible to discount the protectionist arguments of strong nationalists and domestic firms facing stiff competition, there is legitimacy to the concerns outlined above. The challenge for governments is to have policies and programs that attract FDI in a way that reaps its benefits while addressing legitimate concerns. For example, governments have taken major steps during the last couple of decades to minimize the adverse impacts of transfer pricing on tax revenue while also becoming more supportive of foreign direct investment.
Canada's economic development depends on both inward and outward FDI. |