The purpose of the paper is to analyze U.S. policies toward financial investment in developing nations. The paper is presented in two sections. In section I, the controversial effects of direct foreign investment on development are discussed. Case studies of investment policies toward India, the Philippines, Ghana, Guatemala, and Argentina are presented. Review of theoretical and empirical knowledge concerning the impact of direct foreign investment on development indicates serious limitations in existing expertise. The effects of national income, jobs, and government revenues are generally positive. However, the impact on balance-of-payment positions and the exploitative nature of much investment are criticized. Section II presents an appraisal of post World War II investment policies. Topics discussed include taxation of foreign income, tax provisions applicable to developing countries, expropriation losses, alternative approaches, trade policies, risk insurance, and balance-of-payment controls. Review of these policies indicates that the effects of the American tax system in promoting direct foreign investment are highly questionable. The conclusion is that U.S. policy should respond differentially to particular cases and to interactions between policies of the host and home countries. (Author/DB)