A political economy approach to foreign investment and local welfare

A number of papers in the economics and urban literature observe several positive impacts of foreign investment on urban development and urge cities to actively pursue foreign investors. The author conducts a political-economy analysis illustrating that an economic boom stimulated by a massive inflow of international capital may bring about serious social-environmental side effects for tourist cities. If foreign investors dominate a city's policymaking, this foreign-driven expansion may come at the expense of declining local welfare, which can lead to serious social conflicts and political instability. Macao is adopted as a case study.