Foreign Direct Investment in Developing Countries: have we reached a policy ‘tipping point’?

Abstract

In the 1990s, around the world, government policies on fdi were unequivocally fdi -friendly. Numerous policy changes were enacted to make the investment climate more favourable to fdi. However, over the past few years a range of countries has enacted policy measures less favourable to fdi. Does this represent an overall shift in fdi policy thinking? And, if so, what are the current drivers of such a change? This paper discusses trends in contemporary fdi policy and the role played by prevailing narratives, actors and the changing context in shaping policy.

Notes

1 fdi data/definitions remain contentious, however. See unctad (20006: 10 – 14) for details. fdi is defined as an increase in the equity position of a non-resident owner holding more than 10% of shares or voting power in a firm with a lasting interest and control (unctad, 2003: 231).

2 For a review, see Sutton (1999).

3 Hanson (2001:19 – 22) lists a number of case studies of fdi promotion, ranging from US$100 million – $1.5 billion per country per company. Examples include General Motors in Brazil, Ford Motor Co in Brazil and Intel in Costa Rica. General Motors received an estimated direct subsidy of $250 million to cover infrastructure and taxes, a $150 million loan from the state government and further tax breaks equivalent to $1.5 billion over 15 years in return for $600 million in fdi and 1300 jobs. That would equal a cost per job of almost $1.5 million. Ford Motor Co invested $700million in Brazil, creating 1500 jobs, and was given a very similar package—$250 million in straight subsidies and $1.5 billion tax exemptions over 15 years. Intel invested $300million in 1996, creating 2000 jobs, and gained tax exemptions from import duties, export, sales, excise and municipal taxes, and a corporate income tax holiday of eight years with 50% for the following four years.

4 The Make Poverty History campaign is ‘an alliance of charities, trade unions, campaigning groups and celebrities’. See http://www.makepovertyhistory.org.