- Managing FDI in a Globalizing Economy
The co-editors begin their volume by putting forth two propositions that provide the foundation upon which the remainder of their book's contents are constructed. The first is: "Investment, whether domestic or foreign, is an essential ingredient for sustainable growth: productive investment translates into increased output. Especially where domestic resources are insufficient to steer a country towards its long-term growth path, the role of foreign investment becomes indispensable" (p. xvii). The second is: "Whether, and the ways in which, FDI is beneficial or harmful to the host country depends on the context in which the investment takes place and in which the resulting economy activity occurs" (p. 8).
The volume presents examinations of the two propositions in eight chapters with the first two providing a general historical and empirical background that sets the stage for analyses of six countries' experience with foreign direct investment (FDI). The focus is on the People's Republic of China, India, the Republic of Korea, Malaysia, Thailand, and the Socialist Republic of Vietnam. The chapters, written by the co-editors and thirteen other competent and thoughtful scholars, were supervised and co-ordinated by the Asian Development Bank (ADB) staff professionals. The ADB maintains a continuing interest in encouraging debate over the various aspects of FDI flows and the collateral activities of multinational enterprises (MNEs) that are conducted in a highly globalized world that includes the above countries whose populations collectively comprise more than 40 per cent of the world's population.
The evaluation of whether FDI is beneficial or harmful, and in what proportion, starts with the observation that until the 1980s many developing countries viewed FDI with great wariness because of its magnitude and the sheer size of MNEs from which the investments flowed. The enterprises were suspected of practising harmful unfair business practices, price fixing, and transfer pricing, and their links to parent companies residing in developed, market-economy countries posed problems. During the 1980s, a transformation took place since as many restrictions imposed against FDI and MNEs were lifted in the face of beneficial technological change, integrated production and marketing networks, bilateral trade and investment treaties [End Page 398] and the success of economies that were open to trade, investment and financial capital flows.
The transformation took place partly because, in the judgement of some analysts: "The establishment of a multilateral framework of rules … (helped) to improve the investment climate; create a stable, predictable, and transparent environment for investment; enhance business confidence and thereby promote the growth of FDI flows." Other less enthusiastic observers cautioned that, "Such favorable long-term outcomes may, however, be accompanied by arduous adjustments. It is therefore important to minimize the adjustment costs faced by developing countries" (p. 26). The book's contents add to the debate over the role of FDI in a highly open global economy in which developing countries are intricately enmeshed.
Chapters 3 through 8 evaluate the circumstances under which FDI has been and could continue to be beneficial to developing countries. Not surprisingly, the contributors do not fully agree on what circumstances are important and useful in their pursuit of national economic goals. The conflicting experiences of the six countries provide no monolith in terms of a set of policies that might guide government officials to an optimal FDI management strategy. As previously noted, a crucial area of disagreement has to do with the design and implementation of a multilateral framework. Some contributors expressed their concern that a framework would likely be designed by the powerful could be biased towards the interests of large and influential global enterprises. In order to avoid the harm that this would bring to developing countries, they "suggest that developing countries take control of the design of any multilateral framework on investment, to insure that it is 'development friendly.'" Sceptics conclude that an optimum framework could include binding provisions that discipline MNE conduct because currently the enterprises "are often beyond the reach of domestic laws and authorities" (p. 278).
Contention over the shape...