Prakash Loungani and Assaf Razin The resilience of foreign direct investment during financial crises may lead many developing countries to regard it as the private capital inflow of choice.
Attracting quality foreign direct investment in developing countries Share this blog post Foreign direct investment FDI in developing countries has a bad reputation.
In some discussions, it is presented as tantamount to postcolonial exploitation of raw materials and cheap labour. However, recent data shows that FDI in developing countries increasingly flows to medium and high-skilled manufacturing sectors, involving elevated income levels Figure 1.
Quality FDI is characterised as: To achieve this, host countries cannot just wait and see what international market forces may bring to them. Rather, they need tailored policies to overcome domestic imperfections that hinder the smooth integration of indigenous and foreign firms into world-wide supply-chain networks.
The idea underlying the following suggestions is to learn the lessons from experience Moran et al. Manufacturing FDI flows to developing countries Source: Reduce restrictions on FDI.
Provide open, transparent and dependable conditions for all kinds of firms, whether foreign or domestic, including: A successful IPA could target suitable foreign investors and could then become the link between them and the domestic economy. On the one side, it should act as a one-stop shop for the requirements investors demand from the host country.
Moreover, it should engage in after-investment care, acknowledging the demonstration effects from satisfied investors, the potential for reinvestments, and the potential for cluster-development because of follow-up investments. Investment and location decisions of suppliers may be dependent on those of prime multinational investors in the host economy McKinsey, ; Javorcik et al.
Put up the infrastructure required for a quality investor: Strengthen backward linkages from FDI into the indigenous economy. Allow for the competitive pressure of foreign entrants on their local suppliers to raise competitiveness of the latter Rhee et al. Encourage spillovers from FDI into the indigenous economy.
Managers of local firms gain knowledge of new technologies and marketing techniques by studying and imitating their multinational competitors Javorcic and Spatareanu, ; Boly et al. Similarly, worker movements from multinational to local firms spread knowledge and skills.
Encourage first-time foreign direct investors. Foreign firms that are not already part of an extensive network of subsidiaries are readier to accept linkages to domestic suppliers Amendolagine et al.
Encourage foreign direct investors from diaspora members. These are also more likely to generate linkages to domestic firms and contribute to the internationalisation of the host country Boly et al. Provide access to credit by reforming domestic financial markets. Setting-up a business-friendly financial system helps indigenous firms to respond to challenges and impulses from foreign entrants, to self-select into supplier status, and to thereby grow and prosper Alfaro et al.
Set up a vendor development programme to support the match making process between foreign customer and local supplier. Avoid EPZ regulations discriminating against the creation of local supplier relationships. Be patient and rely on the gradual structural transformation of the domestic economy.
Investors may come in waves. For example, first, investors in thermionic tubes, valves and transistors, then, in television and broadcasting systems, and finally, in computers, computer peripherals, and data processing systems.
Along such avenues, FDI may contribute to diversifying and upgrading domestic production Amendolagine et al.Foreign Direct Investment in Zimbabwe: The Role of Institutional Factors.
Farayi Gwenhamoy August 17, Abstract The purpose of the paper is to examine the impact of property rights on foreign direct investment. Foreign Direct Investment in the United States: An Economic Analysis Congressional Research Service 1 Recent Investments The United States occupies a unique position in the global economy as the largest investor and.
Foreign Direct Investment has both positive and negative effect on an economy/country these are Positive Effect Competitive economy - FDI makes the economy of a country more competitive. How Does Foreign Direct Investment Promote Economic Growth?
Exploring the Effects of Financial Markets on Linkages. Expansionary fiscal policy causes income and consumption to increase, which raises money demand and causes interest rates to rise. There is an inflow of foreign funds, which causes the exchange rate to rise, making foreign goods cheaper and results in current account deficits.
Aug 06, · A currency’s level has a direct impact on the following aspects of the economy: Merchandise trade: This refers to a nation’s international trade, or its exports and imports.