In the past few weeks, I discussed, in succession, how foreign direct investments (FDIs) improved and accelerated the economic progress of Indonesia, Vietnam, and Thailand.

I could have looked further back in history and done the same review for the newly industrialized countries of East Asia. In each of these countries — South Korea, Taiwan, Hong Kong, Singapore, China, Malaysia – the same conclusion can pretty much be summed up.

Consensus on the impact of FDIs. Among economists, there is general agreement on the benefits that FDIs bring for growth in these successful cases of rapid economic growth. Differences in opinion might arise in the details, not in the overall outcome.

It is in countries where the benefits of FDIs have not been palpably convincing, and where the inflows of foreign capital have been much less, where critical views on FDIs are often expressed. In such countries, FDIs may not have come in sufficient volume and the accumulated experience did not produce sufficiently favorable outcomes.

When such cases arise (and they exist in many less successful countries), the problem often lies in the nature of economic policies so that the overall business framework was less conducive.

Among economists, however, there is much more unanimity concerning the need for FDIs when a country does not have sufficient investment opportunities at home. When foreign enterprises are allowed, they bring in benefits to a country that would otherwise not be achieved as easily.

When properly directed, FDIs strengthen competition in the economy. They expand the set of choices that citizens are exposed to. Even more significant is when they supplement the earning power of the country in terms of exports that otherwise could not be earned.

Where FDIs produce rising economic output and income. The cases that I have discussed have produced rising incomes which, in turn, helped to sustain economic growth. They raised domestic employment and helped to reduce poverty more quickly.

When the FDIs raised the country’s volume of exports, the balance of payments is strengthened. Such a contribution goes deeper as it helps to diversify the economy’s output. An eventual outcome is that it is possible for the country to improve economic conditions, with output rising and economic opportunities multiplying.

FDI inflows are also often associated with innovations. They can bring in new or more streamlined managerial practices. They can introduce new ways of producing products through new and advanced processes in production or in factory management. In such forms, FDIs became the catalysts for rising overall productivity in the economy.

Further, FDIs also can strengthen the domestic supply chain of production, thus facilitating economic integration. This is demonstrated by the expansion of the auto manufacturing industry within Thailand. That industry evolved from a few FDIs to an impressive agglomeration of FDIs suppliers and also local and joint venture companies supplying the needs of the finished automobile.

When domestic investments in more basic industries exist, new supplier-relationships could arise between FDIs and domestic enterprises. In any case, further investments in basic industries often arise out of the expansion of FDI enterprises operating within the economy.

In the example of Korea and Taiwan, local contractors evolved from earlier employment relationships with the original FDIs. Eventually the FDIs became buyers and local firms became major subcontractors for the manufacture of the equipment. This was a phenomenon that evolved within the electronics industries.

FDIs supplement resource mobilization for the host nation.  Countries at a low level of development often have inadequate saving and investment resources. These countries – in order to raise their economic performance – have to mobilize resources to implement the investments that are needed.

Reliance in part on foreign saving has been a route toward supplementing inadequate domestic resources. Such foreign resource has taken the form of development assistance, borrowings from the international capital market, and private foreign enterprise capital in the form of direct investments.

FDIs normally have their own mechanisms for mobilizing the finance of their economic and business operations. They raise their own capital or access their own credit. They have their own established banking and supply networks.

A country buys into these new networks when they welcome FDIs. Of course, these new networks also expose the host country to the risks faced by the FDIs. However, the primary risk of failure is, first and foremost, borne by the foreign investor. It is only secondary risk that the country is exposed to.

FDIs can borrow from sources of saving that are often independent of those produced within the host country’s own savings pool. Thus, FDIs risk their own capital and may not help to reduce the country’s saving pool.

In general, a reputable FDI company takes care of its own financial and economic resources. It engages in the market for production of a good or service that has presumably viable prospects of producing a rate of return high enough to be worthwhile for it.

FDIs, the ‘multiplier-accelerator’ interaction and poverty reduction. An important principle learned from economics is that investments help to generate income. The continuous inflow of new investments help to accelerate the process of income and employment generation.

Such income generation operates on the basis of a chain of expenditures arising from any given initial spending. The economist explains this as a process in which one man’s expenditure is another man’s income. When the process operates as a chain of such expenditures, it produces an income that multiplies the original spending.

Moreover, changes in spending also induce a further stimulation of investments. Hence, income multiplication through the multiplier leads to an ever-higher demand for new investments. This is what economists call the “multiplier-acceleration” interaction that impacts on a host country’s expansion of the economy.

Of course, in reality, an aspect of such expansion happens through the employment of workers which, in turn, has an impact on commerce. As incomes and employment multiply, additional investments are further stimulated. The result is further acceleration of the growth of the economy.

The provision of jobs is the fool-proof way to provide permanent, sustained increase in incomes. They strengthen the livelihood of communities. When employment is steady, workers are able to raise the nutrition levels of the family, improve their housing and provide for the education of children.

The creation of more employment is the path toward poverty reduction.