Free capital mobility and sustainable community development: A theoretical framework

Although most economists defend the role of foreign investment in global development as positive, a number of tourism geography studies present divergent views on the impact of foreign investment on host communities. To examine this issue, this study develops a simple model to show that liberal economic doctrines tend to shape policies in host communities, thus generating a higher degree of openness to foreign factors of production than is optimal. It treats the openness of a host community to foreign investment as a practical dimension, examining how foreign investors and host communities can negotiate and share the benefits of capital flows from projects with foreign investment. Foreign investors have the first-mover advantage in bargaining with host communities for full openness. However, the impatience of foreign investors can cause them to act against their own interests when faced with the reluctance of host communities to open further because of weak physical, economic, and institutional infrastructures those areas.