Volume 9 • 2022 • Number transnational corporations investment and development


Table 5.  Effect of FDI in agriculture on food security



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Table 5.
 Effect of FDI in agriculture on food security
, by region
Prev
alence of undernourishment
Dietar
y energ
y consumption
East Asia and the 
Pacific
Latin America and 
the Caribbean
Sub-Saharan Africa
East Asia and the 
Pacific
Latin America and 
 
the Caribbean
Sub-Saharan Africa
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
FDI in ag
ricultur
e (lag_1)
-0.0790***
-0.0670**
-0.00038
-0.00667
0.0276
0.0261
3.156***
2.738***
-0.87
-0.616
2.283**
1.934*
(-3.03)
(-2.46)
(-0.02)
(-0.25)
(0.78)
(0.72)
(4.10)
(3.39)
(-1.36)
(-0.81)
(2.16)
(1.81)
GDP per capita (ln)
-6.132***
-5.392***
-8.781***
-14.66***
-6.515***
-5.889**
405.8***
466.1***
510.1***
613.4***
236.7***
334.7***
(-4.65)
(-3.25)
(-3.37)
(-3.82)
(-3.07)
(-2.02)
(10.43)
(9.49)
(6.80)
(5.65)
(4.31)
(4.09)
Crop production
-0.0429***
-0.0622***
0.0231
0.0242
-0.110***
-0.117***
2.514***
1.854***
0.279
0.635
2.654***
1.927***
(-2.78)
(-2.82)
(1.22)
(1.05)
(-7.61)
(-6.34)
(5.52)
(2.84)
(0.51)
(0.97)
(7.04)
(3.88)
Food e
xports
0.0174
0.0276
0.0145
0.00772
-0.048
-0.0462
1.626
0.85
-0.361
-0.168
-1.017
-0.773
(0.29)
(0.42)
(0.75)
(0.36)
(-1.65)
(-1.50)
(0.92)
(0.44)
(-0.65)
(-0.28)
(-1.44)
(-1.07)
Age dependenc
y
0.317***
0.288***
-0.00726
-0.144
-0.367***
-0.329***
-1.116
-2.081
3.075
5.189
-3.264
-3.689
(3.95)
(3.02)
(-0.07)
(-1.02)
(-3.56)
(-2.82)
(-0.47)
(-0.74)
(0.99)
(1.29)
(-1.23)
(-1.30)
Population density
0.0448
0.0423
-0.0699
-0.154
0.0350*
0.0281
-0.410
-1.535
4.811**
6.761**
-0.697
-1.065*
(1.60)
(1.19)
(-0.89)
(-1.40)
(1.86)
(1.13)
(-0.50)
(-1.46)
(2.12)
(2.17)
(-1.61)
(-1.84)
Political stability
-2.128***
-2.074**
-2.841***
-2.681**
-2.268***
-1.992***
-6.507
12.47
49.65**
42.24
-5.576
-20.73
(-2.83)
(-2.47)
(-3.78)
(-2.54)
(-3.45)
(-2.82)
(-0.29)
(0.50)
(2.30)
(1.42)
(-0.23)
(-0.83)
Land go
ver
nance
..
-0.897
..
-0.758
..
0.30
..
2.468
..
-15.07
..
-49.61*
(-1.62)
(-1.00)
(0.28)
(-0.15)
(-0.70)
(-1.85)
Constant
39.18***
39.91***
87.78***
155.1***
100.5***
94.46***
-693.7**
-862.7**
-2 177.8
-3 279.8***
975.2*
615.9
(3.62)
(3.21)
(3.36)
(3.81)
(5.51)
(4.53)
(-2.17)
(-2.34)
(-2.90)
(-2.86)
(1.98)
(1.07)
Obser
vations
Obser
vations
120
120
103103
193193
154154
9595
8585
120120
103103
193193
154154
8080
7171
Source
: Author’

estimations.
No
te
: t
-s
ta
tis
tic
s i
n p
ar
en
th
es
es
. * p < 0
.1
0, *
* p < 0
.0
5, *
** p < 0
.0
1.


67
Does FDI in agriculture promote food security in developing countries? The role of land governance
East Asia and the Pacific, but not in other regions. 
Empirical results should be interpreted carefully. While the two indicators used 
to capture two different dimensions of food security (in its official definition), and 
supply- and demand-related issues, these indicators react reasonably fast to 
external changes. Availability of food for per capita consumption in a country is 
directly linked to its ability to produce, export, and import food in a given year.
Prevalence of undernourishment is calculated as a crude number of people 
whose consumption remains below this level in the same year. Other dimensions 
of food security may reflect longer term factors that affect food security. Health-
related indicators, such as stunting among children and anemia among women, 
capture longer term consequences of food insecurity. One may or may not be 
undernourished today but may suffer growth retardations and other related 
problems due to past experiences of undernourishment. Production-related 
indicators, such as export dependency of essential food groups, variability of food 
supply, share of arable land equipped for irrigation, reflect a country’s productive 
capacity and the stability of the food security status of the country over the long 
term. Therefore, empirical analysis concludes that FDI in agriculture improves food 
security in the short-run but that the results cannot be generalized for long-term 
food security. 
5. Conclusion and policy implications
As population growth, rising incomes and urbanization increase the demand for 
food, investment in agriculture and food systems is not only essential but also 
critical to enhance food security and food safety for all. Foreign direct investment in 
developing country agriculture can play an important role in closing the investment 
gap. However, the recent wave of agricultural investments in developing countries 
pose significant challenges. This is a matter of concern because of the potential 
direct impacts on local populations, which are mainly due to legal gaps in the 
governance of land tenure systems. In most developing countries, tenure systems, 
which define how people and communities access natural resources (e.g. land, 
water, fisheries and forests), are based on unwritten customs and practices rather 
than written policies and laws. 
This study argues that FDI in agriculture does not always enhance food security in 
the host country. Because the recent wave of farmland investments is characterized 
by resource-seeking, and their main motivation is to promote food security in the 
investor country. Even when intended for crop production, foreign investors do 
not always produce for the domestic market. The ultimate effect depends on 
other factors, such as the type of investment, structure of agriculture sector in the 
host country, and the institutions involved. Existing land governance systems are 
particularly important as they determine the direct impact of investment projects on 
local populations and have an indirect impact on domestic food security. 


68
TRANSNATIONAL CORPORATIONS 
Volume 29, 2022, Number 2
To this end, the effect of FDI in agriculture on food security in the host country is 
examined empirically. Using data from 56 developing countries, empirical analysis 
shows that FDI in agriculture has a significant and negative effect on food security 
in the host country. The land governance index used to explore the role of land 
governance, is only significant when it interacts with FDI, which indicates that FDI 
has a more favourable effect where land governance is better. 
The critical thing about customary land and resource tenure systems is that they 
make no distinction between legal property rights and de facto use rights. Most 
recent farmland investments in developing countries exploit this gap in the legal 
system. Foreign investors target predominantly “unutilized” or “underutilized” land, 
which is nonetheless used by local communities. These common lands are critical 
sources of livelihoods for indigenous people and rural populations for agriculture 
or raising livestock. The resilience of small communities and related agro-systems 
is deeply connected to this land. It is also a central factor in economic growth. 
Therefore, no statutory recognition of the customary land tenure in some developing 
countries make rural populations vulnerable to poverty and food insecurity. 
Transferring the property rights of these lands to foreign investors, temporarily or 
permanently, endangers the survival of rural communities by depriving them of land 
and other critical resources for food security, resulting from the production of food 
for direct consumption and providing income-generating activities. 
Growing interest in farmland investment requires vigilance. Measures need to be 
taken to promote responsible and sustainable investment in developing country 
agriculture. When considering an investment in agriculture, one of the main 
principles to observe is not to jeopardize food security and the overall livelihoods 
of local populations directly affected by these investments. It is therefore important 
that investors are aware of local conditions and respect existing local rights to 
land and resources use. Tenure reforms by formalization of customary rights 
are essential to enhance tenure security for a more equitable and transparent 
access to land. Governments need to support sound systems for monitoring and 
assessing the impact of agricultural investments and processes associated with 
them. In order to address concerns about the consequences on local livelihoods, 
governments should formulate integrated policy frameworks to ensure transparency 
in international investments, to prevent marginalization of rural populations, and to 
enhance environmental sustainability. 


69
Does FDI in agriculture promote food security in developing countries? The role of land governance

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