Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies-In-Transition

206 Pages·2016·1 MB·English

by  Theodore H. Moran

Foreign Direct Investment
and Development

THEODORE H. MORAN
Foreign Direct Investment
and Development:
The New Policy Agenda for
Developing Countries and
Economies in Transition
INSTITUTE FOR INTERNATIONAL ECONOMICS
Washington, DC
October 1998
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Theodore H. Moran, Visiting Fellow, is For reprints/permission to photocopy
the Director of the Pew Economic please contact the APS customer service
Freedom Fellows Program and is the department at CCC Academic Permis-
Karl F. Landegger Professor of Interna- sions Service, 27 Congress Street, Salem,
tional Business Diplomacy at Georgetown MA 01970.
University. He is widely known for his
work on international economics and Printed in the United States of America
national security, political risk analysis, 00 99 98 5 4 3 2 1
corporate strategy, and multinational
corporations. Dr. Moran served as Senior Library of Congress Cataloging-in-
Adviser for economic policy on the Policy Publication Data
Planning Staff of the Department of State
(1993-94). Moran, Theodore H., 1943-
Foreign direct investment and
INSTITUTE FOR INTERNATIONAL development : the new policy agenda for
ECONOMICS developing countries and economies in
11 Dupont Circle, NW transition / by Theodore H. Moran.
Washington, DC 20036-1207 p. cm.
[phone] FAX: [phone] Includes bibliographical references and
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To three mentors
Albert O. Hirschman
Charles Kindleberger
Raymond Vernon
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Contents
Preface xi
Acknowledgments xiv
Introduction and Synopsis 1
I FDI in Developing Countries and Economies in Transition:
Opportunities, Dangers, and New Challenges
Introduction 15
1 The Impact of FDI on Host-Country Development:
The Heritage of Theory and Evidence 19
The Benign Model of FDI and Development 19
The Malign Model of FDI and Development 20
Theory and Evidence about Market Structure and FDI 21
Three Earlier Net Assessments of the Impact of FDI on Development 24
II Host-Country Policies to Shape Foreign Investor Activities:
Investment Promotion, Domestic-Content Requirements,
and Export-Performance Requirements
Introduction 29
vii
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2 Theoretical Considerations about Host-Country Intervention
in Investment Promotion, Domestic-Content Requirements,
and Export-Performance Requirements 31
3 Foreign Firms and Host-Country Investment Promotion 37
4 FDI and Domestic-Content Requirements 41
Evidence about Domestic-Content Requirements 41
Reasons for the Adverse Impact of Domestic-Content Requirements 43
The Adverse Political Economy of Domestic-Content Requirements 45
5 FDI and Export-Performance Requirements 49
FDI and Exports in the Automotive Sector: Mexico, Brazil,
and Thailand 51
Export-Performance Requirements for Foreign Investors
and Global Sourcing in the Automotive Sector:
A Preliminary Assessment 61
FDI and Exports in the Petrochemical Sector 63
FDI and Exports in the Electronics/Computer Sector 71
Export-Performance Requirements and the Globalization
of the Automotive, Petrochemical, and Electronics/
Computer Sectors 81
6 Comparative Advantage and the Globalization
of Manufacturing Industries: The Struggle to
Tilt the Playing Field for International Investment 85
Market Failure Rationales for Host-Country Intervention 86
Second-Best Rationales for Host-Country Intervention 94
Strategic-Trade Struggles and the Intersection between Trade
Protection and Investment Diversion 102
Policy Implications for Using Foreign Investors to Penetrate
International Markets: The Dilemmas of Passivism,
Escalation, and Playing for a Draw 113
III Host-Country Policies to Constrain Ownership on the Part
of Foreign Direct Investors: Joint-Venture Mandates
and Technology-Licensing Requirements
Introduction 117
7 FDI and Joint-Venture Requirements 119
Joint-Venture Requirements and Technology Transfer 121
Joint-Venture Requirements and Export Performance 123
Joint-Venture Requirements and Backward Linkages
to the Domestic Industrial Base 125
viii
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8 FDI and Technology-Licensing Requirements 127
Mandatory Technology Licensing and Technological
Deepening 128
Technology-Licensing Requirements and Industrial Deepening 131
Technology-Licensing Requirements and Enhanced Control
over National Champions 133
Technology-Licensing Requirements and National Security 134
IV Host-Country Policies toward Natural-Resource
and Private-Infrastructure Investment
Introduction 139
9 Structural Vulnerability, Imperfect Contracts,
and (cid:147)Political Risk(cid:148) in Natural-Resource and
Private-Infrastructure Projects 141
Structural Vulnerability and the Obsolescing Bargain 142
Multilateral Mechanisms to Enhance the Stability
of Investment Agreements 145
A Balance between Stability and Flexibility 149
V Findings, Conclusions, and Policy Implications
Introduction 153
10 Incorporating FDI into the Development Process:
From Traditional Concerns to a New Agenda
for Action 155
Market Failures, Market Interventions, and the Struggle
for International Corporate Operations 157
A New Policy Agenda toward FDI 159
Tactics for Pursuing the New FDI Agenda: Following a Path
of Unilateral Restraint 161
Tactics for Pursuing the New Agenda toward FDI:
Negotiating a Grand Bargain within a Broadened
and Revised MAI 163
Leadership, Vision, and a New North-South Dialogue 168
References 169
Index 181
ix
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