Skip to main content

Advertisement

SpringerLink
Log in

Foreign Investment and Ethics: How to Contribute to Social Responsibility by Doing Business in Less-Developed Countries

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

Do foreign direct investment (FDI) and international business ventures promote positive social and economic development in emerging nations? This question will always prove contentious. First, the impacts differ according to context. Second, the social consequences and spillover effects of knowledge diffusion and technology-sharing may be limited and hard to measure. Third, contributions to enhancing social responsibility and improving living standards in host countries are delayed in effect, causally complex, and also hard to measure. Outcomes often critically depend on collaboration of governments, international institutions, the business world, and non-governmental organizations (NGOs). Research in this area is challenging and requires interdisciplinary collaboration between economists, financial experts, sociologists, ethicists, and other specialists. This paper explores: (1) the evidence to support the proposition that FDI and international business improve social conditions in less-developed countries, and: (2) how these improvements are linked to strategies of corporate social responsibility (CSR) and ethical business practice. The paper draws insights from development, FDI, poverty alleviation, and bottom-of-the-pyramid (BOP) literature. Applications are demonstrated using examples from poverty-stricken areas of Sub-Saharan Africa. The paper attempts not only to argue theoretically but also to provide practical evidence. The approach is simultaneously descriptive, analytical, and prescriptive in order to address a wide audience. It also highlights issues and trends for further academic research and presents the viewpoint that some limitations lie in the nature of ethics frameworks widely referenced in business and that these often fail to consider the compatibility of ethical constructs with relevant incentives. In this vein, we explore the application of Homann’s framework for advantage and incentive-based ethics.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Exhibit 1

Similar content being viewed by others

Notes

  1. NEPAD’s four primary objectives are: to eradicate poverty, promote sustainable growth and development, integrate Africa in the world economy, and accelerate the empowerment of women, with the eight priority being: political, economic and corporate governance; agriculture; infrastructure; education; health; science and technology; market access and tourism; and environment.

References

  • AACSB International. (2011). Globalization of management education: Changing international structures, adaptive strategies, and the impact on institutions. Available at: http://www.aacsb.edu/publications/researchreports/.

  • Akinboade, O. A., Siebrits, F. K., & Niedermeier Roussot, E. W. (2006). Foreign direct investment in South Africa. In I. Ajayi (Ed.), Foreign direct investment in Sub-Saharan Africa. Nairobi: Origins, Targets Impact and Potential.

    Google Scholar 

  • Arestis, P., Nissanke, P., & Stein, H. (2005). Finance and development: Institutional and policy alternatives to financial liberalization theory. Eastern Economic Journal, 2(31), 245–264.

    Google Scholar 

  • Asiedu, E. (2004). Policy reform and foreign direct investment in Africa: Absolute progress but relative decline. Development Policy Review, 22, 41–48.

    Article  Google Scholar 

  • BBC. (2007). Nigeria probes Siemens bribe case. Retrieved May 20, 2011 from http://news.bbc.co.uk/2/hi/africa/7105582.stm.

  • Becker, G. S. (1974). A theory of social interactions. Journal of Political Economy, 82(6), 1063–1093.

    Article  Google Scholar 

  • Becker, G. S. (1976). The economic approach to human behavior. Chicago: University of Chicago Press.

    Google Scholar 

  • Becker, G. K. (2009). Which role for business ethics? In Ethical prospects (pp. 275–279). Springer, Berlin.

  • Bennett, J. (2002). Multinational corporations, social responsibility and conflict. Journal of International Affairs, 55(2), 393–410.

    Google Scholar 

  • Boatright, J. R. (1999). Does business ethics rest on a mistake? Business Ethics Quarterly, 9(4), 583–591.

    Article  Google Scholar 

  • Boldrin, M., & Levine, D. (2008). Against intellectual monopoly. New York: Cambridge University Press.

    Google Scholar 

  • Buckley, P. J. (2009). The impact of the global factory on economic development. Journal of World Business, 44(2), 131–143.

    Article  Google Scholar 

  • Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 20(1), 497–505.

    Google Scholar 

  • Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business and Society, 38(3), 268–295.

    Article  Google Scholar 

  • Cavanagh, G. F. (2006). American business values. A global perspective (5th ed.). New Jersey: Upper Saddle River.

    Google Scholar 

  • Chen, S., & Ravallion, M. (2008). The developing world is poorer than we thought, but no less successful in the fight against poverty. World Bank Policy Research Paper No. 4703.

  • Chronic Poverty Research Centre. (2009). The chronic poverty report 2008–09: Escaping poverty traps. Available at: http://www.chronicpoverty.org/page/report-2008-09.

  • Cleeve, E. (2009). The eclectic paradigm and foreign direct investment in Sub-Saharan Africa. In Proceedings of the 10th IAABD (International Academy of African Business and Development) Annual Conference.

  • Copeland, M. V. (2009). Products for the other 3 billion. Fortune, 159(7), 27.

    Google Scholar 

  • Datar, S. M., Garvin, D. A., & Cullen, P. G. (2010). Rethinking the MBA. Boston, MA: Harvard Business Press.

    Google Scholar 

  • Dixon, C. J., Drakalcis-Smith, D., & Watts, H. D. (Eds.). (1986). Multinational corporations and the third world. Boulder, CO: West-View.

    Google Scholar 

  • Donaldson, T. (1989). Moral minimums for multinationals. Ethics and International Affairs Journal, 3, 163–182.

    Article  Google Scholar 

  • Donaldson, J. (2001). Multinational enterprises, employment relations and ethics. Employee Relations, 23(6), 627–642.

    Article  Google Scholar 

  • Donaldson, T., & Dunfee, T. W. (1999). Ties that bind: A social contracts approach to business ethics. Boston, MA: Harvard Business School Press.

    Google Scholar 

  • Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy. Williston: Edward Elgar Publishing.

    Google Scholar 

  • Dupasquier, C., & Osakwe, P.N. (2005). Foreign direct investment in Africa: Performance, challenges and responsibilities. African Trade Policy Centre, Paper No. 21. Available at: http://www.uneca.org/atpc/Work%20in%20progress/21.pdf.

  • European Union Commission. (2010). EU-Africa Business Forum Declaration 2010. Available at: http://www.africa-eu-partnership.org/node/1696.

  • Fabry, N., & Zeghni, S. (2007). FDI in the new European neighbours of Southern Europe: A quest of institutions-based attractiveness. MPRA (Munich Personal Research Papers in Economics Archive) Paper No. 1109. Available at http://mpra.ub.uni-muenchen.de/1109.

  • Fazio, G., & Talamo, C. (2008). How ‘Attractive’ is good governance for FDI?. International Finance Review, 9, 33–54.

    Article  Google Scholar 

  • Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN). (2009). Sector budget support in practice: Agriculture sector in Mozambique. Available at: http://www.fanrpan.org/documents/d00816/.

  • Gary, I., & T.L. Karl (2003). Bottom of the barrel. Africa’s oil boom and the poor. Catholic Relief Services Report, June 2003.

  • Ghauri, P. N., & Yamin, M. (2009). Revisiting the impact of multinational enterprises on economic development. Journal of World Business, 44(2), 105–107.

    Article  Google Scholar 

  • Giannaros, D. (2008). Twenty years after the economic restructuring of eastern Europe: An economic review. International Business and Economics Research Journal, 7(11), 35–47.

    Google Scholar 

  • Glac, K. (2004). The impact of foreign direct investment on ethical standards in host countries. Philadelphia: The Wharton School, University of Pennsylvania. Available at: http://lgst.wharton.upenn.edu/glac/documents/Impact_of_FDI_on_ethical_standards8_03_04.pdf.

  • Goodpaster, K. E. (1987). The principle of moral projection: A reply to professor Ranken. Journal of Business Ethics, 6(4), 329–332.

    Article  Google Scholar 

  • Hart, S. S., & London, T. (2005). Developing native capability: What multinational corporations can learn form the base of the pyramid. Stanford Social Innovation Review, 3(2), 28–33.

    Google Scholar 

  • Hemphill, T. A. (2004). Corporate citizenship: The case for a new corporate governance model. Business and Society Review, 109, 339–361.

    Article  Google Scholar 

  • Hielscher, S., & Pies, I. (2011). The international provision of pharmaceuticals: A comparison of two alternative argumentative strategies for global ethics. Journal of Global Ethics, 7(1), 73–89.

    Article  Google Scholar 

  • Homann, K. (2002). Vorteile und Anreize. Zur Grundlegung einer Ethik der Zukunft. Tübingen: Mohr.

    Google Scholar 

  • Homann, K. (2006a). Competition and morality. Wittenberg Center for Global Ethics Discussion Paper 2006-4. Available at: http://www.wcge.org/download/DP_2006-4_Homann_-_Competition_and_Morality_o.pdf.

  • Homann, K. (2006b). The sense and limits of the economic method in business ethics. Wittenberg Center for Global Ethics Discussion Paper 2006-5. Available at: http://www.wcge.org/download/DP_2006-5_Homann_-_The_Sense_and_Limits_of_the_Economic_Method_in_Business_Ethics_o.pdf.

  • Homann, K. (2006c). Morality and advantages. Wittenberg Center for Global Ethics Discussion Paper 2006-6. Available at: http://www.wcge.org/download/DP_2006-6_Homann_-_Morality_and_Advantages.pdf.

  • International Labour Office (ILO). (2008). Promotion of rural employment for poverty reduction, Report IV. In International labour conference, 97th Session, Geneva.

  • Jamali, D. (2010). The CSR of MNC subsidiaries in developing countries: Global, local, substantive or diluted? Journal of Business Ethics, 03, 181–200.

    Article  Google Scholar 

  • Johnson, (1993). Moral imagination: Implications of cognitive science for ethics. Chicago: University of Chicago.

    Google Scholar 

  • Karani, P., & Gantsho, M. (2007). The role of Development Finance Institutions (DFIs) in promoting the Clean Development Mechanism (CDM) in Africa. Environment, Development and Sustainability, 9(3), 203–228.

    Article  Google Scholar 

  • Katerere, Y., & Mohamed-Katerere, J. C. (2005). From poverty to prosperity: Harnessing the wealth of Africa’s forests. Forests in the global balance—Changing paradigms. IUFRO (International Union of Forest Research Organizations, Helsinki) World Series, 17, 185–208.

    Google Scholar 

  • Kaufmann, D., Kraay, A., & Mastruzzi, M. (2005). Governance indicators. World Bank Research Policy Paper 3106.

  • Kennedy, T. F. (2011). African elites bear huge responsibility. Global Geopolitics & Political Economy, Geopolitical and Economic News and Analysis, 19, 2011.

    Google Scholar 

  • Kiweu, J. M. (2009). The critical success factors for commercializing microfinance institutions in Africa. Cape Town: University of Stellenbosch Business School.

    Google Scholar 

  • Kolk, A., & van Tulder, R. (2006). Poverty alleviation as business strategy? Evaluating commitments of frontrunner multinational corporations. World Development, 24(5), 789–801.

    Article  Google Scholar 

  • Kowalewski, O., & Weresa, M.A. (Eds.). (2008). The role of foreign direct investment in the economy. Available at: http://ideas.repec.org/b/rai/rhbook/9783866183070.html.

  • Lakoff, G. (2002). Moral politics: How liberals and conservatives think. Chicago: University of Chicago Press.

    Google Scholar 

  • Lin-Hi, N. (2008). Corporate social responsibility: An investment in social cooperation for mutual advantage. Wittenberg Center for Global Ethics Discussion Paper 2008-6. Available at: http://www.wcge.org/download/DP_2008-6_NickLin-Hi_CorporateSocialResponsibility_final_oo.pdf.

  • London, T., & Hart, S. L. (2004). Reinventing strategies for emerging markets: Beyond the transnational model. Journal of International Business Studies, 35(5), 350–370.

    Article  Google Scholar 

  • Longworth, R. C. (1998). Global squeeze: The coming crisis for first-world nations. Lincolnwood: Contemporary Publishing Group.

    Google Scholar 

  • Luetge, C. (2005). Economic ethics, business ethics and the idea of mutual advantages. Business Ethics: A European Review, 14, 108–118.

    Article  Google Scholar 

  • Luiz, J. M. (2006). The new partnership for african development. Questions regarding Africa’s response to its underdevelopment. Journal of International Development, 18(2), 223–236.

    Article  Google Scholar 

  • Luiz, J. M. (2010). Infrastructure investment and its performance in Africa over the course of the twentieth century. International Journal of Social Economics, 37(7), 512–536.

    Article  Google Scholar 

  • Lyman, T. R. (2000). Supporting microfinance abroad: Introductory legal issues for U.S. grantmakers. The International Journal of Not-for-Profit Law, 2(4), 222–224.

    Google Scholar 

  • McBride, M. (2005). Crises, reforms, and regime persistence in sub-Saharan Africa. European Journal of Political Economy, 21, 670–688.

    Article  Google Scholar 

  • Mengistu, A. A. (2009). The roles of human capital and physical infrastructure on FDI inflow: Empirical evidence from east Asia and sub Saharan Africa. CSAE Conference Paper No. 122, Ritsumeikan Asia Pacific University.

  • Meyer, K. E. (2004). Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35(4), 259–276.

    Article  Google Scholar 

  • Mhlanga, N. (2010). Private sector agribusiness investment in sub-Saharan Africa. Rome: FAO.

    Google Scholar 

  • Michael, M. L. (2006). Business ethics: The law of rules. Business Ethics Quarterly, 16(4), 475–504.

    Google Scholar 

  • Moran, T. E., Graham, E. M., & Blomström, M. (Eds.). (2005). Does foreign direct investment promote development?. Washington: Institute for International Economy.

    Google Scholar 

  • Moss, T., Ramachandran, V., & Shah. M. (2004). Is Africa’s skepticism of foreign capital justified? Evidence from east African firm survey data. Working Paper No. 41. Washington: Center for Global Development.

  • Ngowi, H. P. (2001). Can Africa increase its global share of Foreign Direct Investment (FDI)? West Africa Review, 2, 1–22.

    Google Scholar 

  • Nissanke, M., & Thorbecke, E. (2004). The impact of globalization on the world’s poor—Channels and policy debate. World Institute for Development Economics Research (WIDER), WIDER Angle Papers No.2: 10-13.

  • Nunnenkamp, P. (2001). Foreign direct investment in developing countries. What policymakers should not do and what economists don’t know. Available at: http://www.econstor.eu/bitstream/10419/2616/1/kd380.pdf. Accessed Oct 13, 2010.

  • Obwona, M., & Egesa, K. (2006). Foreign direct investment flows in Sub-Saharan Africa: Uganda country case study. In Ajayi, I. (Ed.). Foreign direct investment in sub-Saharan Africa: Origins, targets, impact and potential. Nairobi: African Economic Research Consortium.

  • OECD. (2007). Governance in Africa‘s development. In The 9th Africa partnership forum, Algiers, November 12–13, 2007. Available at http://www.oecd.org/dataoecd/40/9/39696978.pdf, accessed Oct. 10, 2010.

  • Peacock, T., Ward, C. G., & Gambarelli. (2007). Synthesis report investment in agricultural water for poverty reduction and economic growth in sub-Saharan Africa, Nairobi.

  • Perrons, D. (2004). Globalization and social change: People and places in a divided world. London: Routledge.

  • Pies, I. (2003). Global social contract. On the road to an economically-sound ethics of globalization. Wittenberg Center for Global Ethics Discussion Paper 2003-2. Available at: http://www.wcge.org/download/DP_03-2_Pies_-_Global_Social_Contract.pdf.

  • Pies, I., Beckmann, M., & Hielscher, S. (2009). Value creation, management competencies and global corporate citizenship: An ordonomic approach to business ethics in the age of globalization. Journal of Business Ethics, 94, 265–278.

    Article  Google Scholar 

  • Pogge, T (2009). Medicines for the world: Boosting innovation without obstructing free access. In Mack et al. (Ed.), Global justice: Empirical data—moral theories—initiatives (pp. 193–217). Farnham (U.K.): Ashgate.

  • Prahalad, C. K. (2004). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Philadelphia: Wharton School Publishing.

    Google Scholar 

  • Prahalad, C. K. (2006). Democratizing commerce: The challenge for the 21st century, Tilburg Lecture. Available at http://www.tilburguniversity.nl/university/doctorates/2006/prahalad/lecture.html.

  • Pratt, C. B. (1991). Multinational corporate social policy process for ethical responsibility in sub-Saharan Africa. Journal of Business Ethics, 10(7), 527–541.

    Article  Google Scholar 

  • Poverty Reduction and Growth Facility Program (PRFG). (2009). Fact sheet. New York: IMF. http://www.imf.org/external/np/exr/facts/prgf.htm.

  • Qu, R. (2007). Corporate social responsibility in China. Chinese Management Studies, 1(3), 198–207.

    Article  Google Scholar 

  • Ramamurti, R. (2004). Developing countries and MNEs: Extending and enriching the research agenda. Journal of International Business Studies, 35(4), 277–283.

    Article  Google Scholar 

  • Rausch, T. (2010). The DrumNet project: Lessons learned from an ICT Initiative in Kenya’s agricultural sector. AITEC East Africa ICT Summit, September 2010. Available at: http://www.prideafrica.com/assets/docs/AITEC.pdf.

  • Rawls, J. (2001). Justice as fairness: A restatement. Cambridge: Harvard University Press.

    Google Scholar 

  • Sachs, J. D. (2005). The end of poverty: Economic possibilities for our time. London: Penguin Press.

    Google Scholar 

  • Sautman, B., & Hairong Y. (2009, December 28). Trade, investment, power and the China-in-Africa discourse. The Asia-Pacific Journal, 52-3-09.

  • Slaughter, M. J. (2001). Skill upgrading in developing countries: Has inward foreign direct investment played a role? Paris: OECD Development Center Report.

    Google Scholar 

  • Smith, J. D. (2005). Moral markets and moral managers revisited. Journal of Business Ethics, 61, 129–141.

    Article  Google Scholar 

  • Spring, A. (2009). Chinese development aid and agribusiness entrepreneurs in Africa. In Sigué, S. (Ed.). Repositioning African business and development for the 21st century. Proceedings of the 10th international academy of African business and development annual conference, Kampala, Uganda (pp. 23–33).

  • UNCTAD (2011a). Foreign direct investment in LDCs: Lessons learned from the decade 2001–2010 and the way forward. Geneva: UNCTAD.

  • UNCTAD. (2011b). Investment in pharmaceutical production in the least developed countries. A guide for policymakers and investment promotion agencies. Geneva: UNCTAD.

    Google Scholar 

  • United Nations Environment Programme (UNEP). (2010). International conference to save forests opens in Oslo. Available at http://www.unep.org/cpi/briefs/2010May27.doc#B1.

  • Van Dijk, M. P. (Ed.). (2009). The new presence of China in Africa. Amsterdam: Amsterdam University Press.

    Google Scholar 

  • Wallis, W. (2011, February 19/20). Roll out the barrels. Financial Times, p. 19.

  • Walton, C. C. (1998). The moral manager. New York: Harper Business.

    Google Scholar 

  • Wei, S.-J. (2000). Local corruption and global capital flows. Brookings Papers on Economic Activity, 2, 303–354.

    Article  Google Scholar 

  • Werhane, P. H. (1999). Moral imagination and management decision making. Oxford: Oxford University Press.

    Google Scholar 

  • Williams, A., Bonney, T., & Xuereb, M. (2009). Assess the influence of China in sub-Saharan Africa. London, UK: The Royal College of Defence Studies.

    Google Scholar 

  • World Bank. (2007). The developing world is poorer than we thought, but no less successful in the fight against poverty. Policy Research Paper 4703. New York: World Bank.

  • World Commission on the Social Dimension of Globalization. (2004). A fair globalization: Creating opportunities for all. Report on policy issues, ILO. Geneva: World Commission on the Social Dimension of Globalization. http://www.ilo.org/public/english/wcsdg/docs/report.pdf. Accessed October 6, 2010.

  • World Health Organization (2005). Health and the millennium development goals. Geneva: WHO.

  • Yamin, M., & Sinkovics, R. (2009). Infrastructure or foreign direct investment? An examination of the implications of MNE strategy for economic development. Journal of World Business, 44(2), 144–157.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. BardyConsult, Mannheim, Germany

    Roland Bardy

  2. Florida Gulf Coast University, Fort Myers, FL, USA

    Roland Bardy

  3. Center for Leadership and Innovation, Lutgert College of Business, Florida Gulf Coast University, Fort Myers, FL, USA

    Stephen Drew

  4. Wittenberg Center for Global Ethics, Wittenberg, Germany

    Tumenta F. Kennedy

  5. African Business Information Bank, Berlin, Germany

    Tumenta F. Kennedy

Authors
  1. Roland Bardy
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Stephen Drew
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Tumenta F. Kennedy
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Roland Bardy.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Bardy, R., Drew, S. & Kennedy, T.F. Foreign Investment and Ethics: How to Contribute to Social Responsibility by Doing Business in Less-Developed Countries. J Bus Ethics 106, 267–282 (2012). https://doi.org/10.1007/s10551-011-0994-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-011-0994-7

Keywords

Search

Navigation