Using Foreign Direct Investment to the developing country’s advantage

This thesis assesses FDI effects on development in Zambia. The copper sector has attracted vast amounts of FDI and potentially generates Zambia’s economic wealth that could be the catalyst of development. However, Zambia is bottoming many rankings and belongs to the poorest countries of the world. The main question therefore is: Why is FDI in the copper sector in Zambia not beneficial for national development and what is the role of the government? First, I conduct a literature review and elaborate on the research design. Thereafter, I will analyze the copper sector’s development and determine conditions and circumstances. There are four intermediary variables, also called the conditions and circumstances affecting FDI outcomes: the level of human development, the policy of foreign investors, the type of investment and lastly the local policy framework regulating FDI. Then, FDI effects on Zambia economic development is analyzed with the use of various channels: linkages, spillovers, the filling of resource, trade and tax gaps and finally the side effects of mineral mining. The empirical findings suggest that the one-­‐dimensional economy depending on the copper price and export volumes makes Zambia vulnerable for global booms and busts, resulting in uncertain revenues. Additionally, the practices of foreign investors, focused on cheap copper extraction and export, undermine development. Zambia’s economic and human development is pressurized by the relative power of multinational companies, which focus on refining and exporting copper, repatriating profit and adding value abroad. Eventually I conclude that the weak regulatory framework gives foreign investors a free hand.