It is well accepted now that economic growth and development are
highly dependent on improving not just the availability of capital,
but also the technological capabilities, infrastructure and
resources available to (and internalized by) firms, individuals and
institutions in any country.
Over the last two decades or so, there has been a significant shift
away from a inward-looking, import-substituting approach towards a
more outward-looking, export-oriented policy orientation. The
reasons for this shift are complex, but have to do with
developments associated with globalization, trade and debt deficits
faced by IS-driven economies, as well as the acknowledged success
of the Asian newly industrialized economies (NIEs) in technological
and economic 'leapfrogging' within an outward-oriented approach.
One of the key features of policy liberalization is the need to
attract foreign direct investment (FDI) as a means to acquire or
improve technological capabilities through multinational enterprise
(MNE) activity.
The role of the MNE as an additional source of capital and
technology is one of the key features of this new openness, as
alternative sources of capital have become scarcer, exacerbated by
economic and financial crises. The failure of protected industries
in LDCs to become competitive on global markets has highlighted the
limitations of the arms-length technology transfer approach. At the
same time, the need to build strong local capabilities has not
diminished; on the contrary, it has risen as increasingly mobile
factors seek strong complementary factors in sites where they will
locate.
Hence, in recent years, both LDC governments and foreign donors
have increasinglycome to focus on the role MNEs and FDI can play in
development. This has been accompanied by a lifting of many types
of regulations that previously limited the role of FDI and MNEs in
many developing countries, and a reassessment among donors of the
role of public versus private actors in development aid.
However, although liberalization has affected the demand for FDI,
it has not necessarily always resulted in an increase of FDI
inflows. On the other hand, MNEs have an increasingly wide
selection of locations available to them, and relatively speaking,
the supply of FDI has not increased proportionally with demand.
Furthermore, declining trade barriers and restrictions on trade
allow MNEs to supply markets without engaging in local production.
A large share of FDI continues to be directed to a relatively small
group of countries.
In the process of embracing FDI as a solution to the myriad of
economic ills there is a lack of understanding of the need to
develop the necessary domestic capacity to attract, and absorb the
spillovers and externalities that derive from, FDI. The importance
of foreign investment is now taken as given and little attempt is
made to understand the rationale and the costs associated with this
policy stance. Simply put, FDI is not a condition sine qua non for
development. Too much emphasis has been placed on attracting FDI,
and not on understanding how to optimize the benefits for the host
economy. This volume aims to encourage and promote research related
to these issues.
This volume was previously published as a special issue of the
European Journal of Development Research.
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