The decline in flows of foreign direct investment (FDI) to Latin America and the Caribbean which began in 2000 grew even sharper in 2002. This trend reflects a major change in the world and regional economies. At the regional level, it is associated with greater instability, slow economic growth and the approaching completion of the privatization process. National crises such as those experienced by Argentina, Uruguay and Venezuela made investors become more risk-averse. Sluggish growth in demand in the United States economy hurt investment in Mexico, Central America and the Caribbean, where the transnational corporations that employ efficiency-seeking strategies are concentrated. The global and regional situations had a less adverse effect on FDI in the countries of the Andean Community, where the primary sector predominates, but instability in the Mercosur countries diminished their attractiveness for transnational corporations implementing market-seeking investment strategies. This publication is composed of three chapters. The first provides a broad review of FDI trends in Latin America and the Caribbean. The second offers the reader a comprehensive discussion of investment flows to the Andean Community countries. The third analyses flows from transnational banks to the banking sector in the region and assesses what types of effects their strategies are having on the region.