Foreign Investment and Disparities in Economic Development and Poverty Reduction

Abstract

To remain economically competitive in the 21st century a nation must be able to secure resources beyond its borders and protect itself from other nations trying to do the same. While the situation has been shown to be more complex, the original assumption among world system researchers remains that multinational corporate penetration in the periphery can have negative effects on their prospects for economic development. But we now know that these negative effects upon long-term economic development can be prevented. The existence of a strong development state can be critical for this protection. In addition to supplying ‘good governance’ (as the World Bank now calls it), a strong development state can provide protection in the global economy so that multinational corporate penetration is beneficial rather than harmful to less developed nations. But given the importance of a strong development state it is surprising that little research has been directed to the question of how a nation acquires a development state and ‘good governance.’ To begin answering this question, this article focuses on the countries of Southeast Asia. After examination of the wide contrast among Southeast Asian nations with respect to economic development and poverty reduction, a comparative-historical analysis is employed to develop a model which helps us explain these contrasts. Previous research on economic development in East and Southeast Asia only recognized the impact of ‘Asian values’ on unity, respect for authority, and a work ethic among the masses. Beginning with the impact of ancient civilizations and the potential for nation-building, this research also suggests the importance of a sense of national identity and responsibility among elites. The model then turns to how this potential for a strong development state can be affected by different aspects of colonialism. Finally, the article considers the model’s potential application to Africa and Latin America in helping us understand differing rates of economic success for other periphery and semiperiphery nations in the modern world system.