Modernization vs. Dependency Revisited: Effects of Foreign Direct Investment on Food Security in Less Developed Countries

Abstract

Food security is of great urgency in the developing world. Many countries have sought to attract foreign capital to promote development and reduce hunger. But how do foreign direct investment (FDI) inflows affect food security? Extant research based on dependency and modernization arguments or the globalization debate offers contradictory theoretical predictions and produces conflicting evidence. We resolve the puzzle by disaggregating FDI. Foreign investments in distinct economic sectors have disparate attributes, producing different welfare consequences for food security. We test our arguments using the food security indicators recommended by the Food and Agriculture Organization (FAO) and new data on sector-specific FDI inflows to 56 developing and transition economies between 1981 and 2001. We find highly robust evidence that manufacturing FDI improves food security. We also find that primary-sector FDI reduces food security and that service-sector FDI has an ambiguous but sometimes negative effect. These results are largely robust under different statistical methods, additional control variables, and alternative measures of food security. Our research offers policy lessons for how to improve food security, and demonstrates how to resolve theoretically the long-standing dependency-modernization controversy that has informed the contemporary debate between the pro- and anti-globalization camps.

Keywords: FDI, food security, globalization