The Political Economy of Globalism in South America: Strategic Implications for Foreign Direct Investment

In recent years, many South American countries have moved from policies embracing neo-liberal, market-based economic policies to those supporting nationalization of industries and the re-institution of trade barriers (to protect domestic industries). This paper first addresses the concept of "globalism", efforts at globalization of trade, and development of free markets in South America since the 1980s. Second, it reviews regional trade agreements, with a focus on Mercosur, the most important regional trade organization. Third, it discusses recent trends in South America's nationalization of industries. Fourth, a political risk analysis of future free trade and foreign direct investment in the region is undertaken. Fifth, conclusions and recommendations are offered, including: 1) the effects of increased government control of the economy may result in full-member status countries in Mercosur becoming less attractive as host nations for foreign direct investment, while conversely, non-full members may become more attractive; 2) center-left governments, unlike those embracing orthodox socialist policies, are not instituting policies discouraging foreign direct investment; and 3) where there are instances of host country expropriation of private property (without fair market compensation), a robust corporate policy of pursuing claims (with home country support) through the International Centre for Settlement of Investment Disputes is recommended.