The role of foreign direct investment (FDI) in promoting access to clean water

Abstract

Does foreign direct investment (FDI) decrease access to clean water in developing nations? Governments use economic growth from globalization to fund investment in infrastructure to improve water access, but FDI is hindering these efforts through pollution and increased water usage that put pressure on the supply of this public good. I test the hypothesis that growing pressure from increased use and pollution of water by foreign investors reduces water access in developing countries, where impacts are felt more acutely than in developed countries where public goods institutions are stronger. Using a country-year fixed effects regression model on a panel data set of over 130 countries from 1990 to 2010, I assess whether FDI increases or decreases potable water access in developing countries, and the role that development plays in moderating this effect. I find strong evidence of a negative relationship between FDI and access to potable water in developing countries.