The report does not focus solely on the positive effects
of FDI for development. It also addresses concerns about
potential drawbacks for host economies, economic as well
as non-economic. While many of the drawbacks, referred to
as “costs” in this report, arguably reflect shortcomings in
the domestic policies of host countries, important challenges
may nevertheless arise when these shortcomings
cannot easily be addressed. Potential drawbacks include a
deterioration of the balance of payments as profits are
repatriated (albeit often offset by incoming FDI), a lack of
positive linkages with local communities, the potentially
harmful environmental impact of FDI, especially in the
extractive and heavy industries, social disruptions of accelerated
commercialisation in less developed countries, and
the effects on competition in national markets. Moreover,
some host country authorities perceive an increasing
dependence on internationally operating enterprises as
representing a loss of political sovereignty. Even some
expected benefits may prove elusive if, for example, the
host economy, in its current state of economic development,
is not able to take advantage of the technologies or
know-how transferred through FDI.