Foreign direct investment (FDI) has become a hotly debated issue around the world. This is also true of FDI in Bolivia. FDI has flowed into the country, but progress in attracting it has coincided with controversy on the impacts of certain FDI projects. The purpose of this briefing paper is to go beyond individual projects and discuss the effect of FDI on development in general in Bolivia. It will consider the impact of FDI and policies that may improve its developmental impact on the basis of findings arrived at at a seminar held in La Paz in October 2002 organised by the Institute for Socio-Economic Research (IISEC) of the Catholic University of Bolivia in La Paz and the Overseas Development Institute (ODI) in London.

The paper first discusses the size and structure of FDI flows into Bolivia in the Latin American context. It will then evaluate the effects of FDI; this is important because attracting FDI is a means towards achieving development objectives. The paper undertakes an evaluation of FDI in two dimensions: economic growth and income distribution. While there are many policies that can improve the developmental impact of FDI in principle, the paper concentrates on those that were discussed during the seminar.