Foreign direct investments: Issues and impact for developing countries

Résumé du document

In the context of globalization, the increasing interconnection of markets and the geographical burst of the production chain can represent an opportunity for developing countries to join the world economy to enhance their growth. The resilience of foreign direct investment (FDI) during financial crises may lead those countries to consider it as the best sources of foreign capital flows and favor FDI over other inflows, following a trend that started many years ago. But, is this preference over other forms of private capital inflows justified? Their drastic growth over the past fifteen years revived the debate concerning potential gain and loses they can incur. How beneficial are actually FDI for developing countries? While there is substantial evidence that they benefit to host countries, potential impacts have to be carefully and realistically assessed.

Extraits

[...] Smarzynska “Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages (The World Bank - Development Research Group –Trade October 2002) Njomatchoua, “Investissement direct étrangers et renforcement des capacités technologiques de l'Afrique” Mayer “Policy coherence for development: a backgroung paper on foreign direct investment” available online http://www.oecd.org/dataoecd/48/38/37238110.pdf (seen the 02/04/07) Walid Hejazi and Peter Pauly et formation de capital” Ricardo Hausmann and Eduardo Fernandez, “Foreign Direct Investment: Good Cholesterol?,” Inter-American Development Bank Working Paper No -Arias Paul Krugman, “Firesale MIT. [...]

[...] Foreign Direct Investments: issues and impact for developing countries How beneficial are actually FDI for developing countries? Table of contents Introduction 2 Low-down on foreign direct investments 2 Impact on receiving countries: expectations and realities 3 Towards a reinforcement of territorial discrepancies? 6 Conclusion 7 References 7 Introduction In the context of globalization, the increasing interconnection of markets and the geographical burst of the production chain can represent an opportunity for developing countries to join the world economy and by this way to promote their growth. [...]

[...] This catching up has to tighten the link between foreign subsidiary and the local industrial base. The integration of local firms in the externalized production chain of TNC will only be possible if those firms meet the quality standards imposed by the subsidiaries. For TNCs, the most important R&D centers are located in home countries where the leading-edge R&D is conducted, while R&D operations abroad involve smaller-scale applied research and development activities[14] We understand clearly that FDI and catching up are linked in two senses: the existence of a local competitive industrial base is necessity to attract investors. [...]

[...] Towards a reinforcement of territorial disparities? The globalization and especially the economic integration modify deeply the location of activities. We can think that the previously described conditions required to attract FDI can only be met in big urban area. Guimares showed that the agglomeration is a decisive criteria for TNC when they are to choose a place to settle. Côte highlighted that general trend for foreign capital inflows as well as private ones is to choose logically the places that are the most secured.” According to him, despite land settlement policies, the liberalization of economies and the free entrance of capitals, disparities between industrialized regions and those in the periphery are bound to increase. [...]

[...] A too wide technological gap between the emitting and the receiving country prevent the latter from absorbing the imported technologies. One can try to isolate the characteristic of FDI sparking substantial spillovers off. Blomstrom and Sjoholm[12] believe that they are more the consequence of the concurrence's strengthening resulting from FDI, than from other factors like the degree to which the foreign company takes part in the local industry. Some constraints slow down the passage of a foreign technology in a host country to a real acquisition of this technology by this country. [...]