Foreign Investment Protection: A Reasoned Approach

The main purpose in protecting private foreign investment is to encourage capital to move to newly developing nations in spite of serious, existing non-business risks. These risks are (1) the political risk (outright and “creeping” expropriation), (2) the transfer risk ( currency controls and inconvertibility of funds), and (3) the calamity risk (insurrection, revolution, war, etc.). But why encourage this? Why should an affluent, powerful nation seek, in effect, to transport overseas some of its affluence and power? Why–in the case of the United States-should encouragement be given to that which may, according to some, tend to tip still more unfavorably the balance of payments?

There are two reasons: humanitarianism and self-interest.