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FDI: What can the developing countries do differently?
By admin July 17, 2018

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In the face of inadequate resources to finance infrastructure and long-term sustainable development in a significant number of the developing countries, Foreign Direct Investment (FDI) has assumed a prominent place as an integral part of an open and effective international economic system and a major catalyst for development. The World Bank defines FDI as a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy as well as equity that gives rise to such control or influence.

The overall benefit of FDI for a developing country is well documented. Given the appropriate host-country policies and the basic level of development, empirical evidence shows that FDI triggers technology spillover, assists human capital formation, contributes to international integration, helps create a more competitive business environment and enhances development. According to the United Nations Conference on Trade and Development report “Investment Trends Monitor,” global foreign direct investment (FDI) fell by 16% in 2017, to an estimated US$1.52 trillion, FDI in developing economies remained stable, at an estimated US$653 billion, 2% more than the previous year. Despite this positive trend in FDI growth among developing countries, the benefits across these countries have been mixed.

While South East Asia led by China and Singapore have attracted FDI for their manufacturing and financial services sectors, Latin America and Africa have predominantly prioritized these investments for their extractive industries. As a consequence, China and Singapore have enjoyed impressive economic growth, while a good number of the countries in Latin America and Africa have remained economically stagnant. Hence, for these developing countries to get on track and reap the benefits from FDI, there’s an urgent need to go beyond attracting FDIs for their extractive sector. The strategy for the later should be to refocus FDI towards manufacturing and financial services and ensure that investments in the extractive industries include a requirement for value-addition. Ultimately, this new approach will not only improve economic growth in developing countries but also enable these countries to retain the benefits from their resources, develop domestic technical capacities and leverage private capital.

For Further Reading:

Investment Trends Monitor, UNCTAD

Foreign Investor Perspectives and Policy Implications: 2017/2018 Global Investment Competitive Report

ASEAN Investment Report 2017: Foreign Direct Investment and Economic Zones in ASEAN

Foreign Direct Investment, Its Pros, Cons, and Importance to You

Foreign Direct Investment for Development

 


Thanks for sharing !


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