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</td><td colspan="4"><p>A. FDI Distribution (%) </p></td><td colspan="4"><p>B. Per Capita FDI (US$) </p></td></tr><tr><td colspan="2"><p>1980s </p></td><td colspan="2"><p>1990s </p></td><td colspan="2"><p>1980s </p></td><td colspan="2"><p>1990s </p></td></tr><tr><td><p>Early </p></td><td><p>Late </p></td><td><p>Early </p></td><td><p>Late </p></td><td><p>Early </p></td><td><p>Late </p></td><td><p>Early </p></td><td><p>Late </p></td></tr><tr><td><p>AFR </p></td><td><p>6.0 </p></td><td><p>8.8 </p></td><td><p>4.0 </p></td><td><p>3.9 </p></td><td><p>2.7 </p></td><td><p>2.9 </p></td><td><p>4.2 </p></td><td><p>10.6 </p></td></tr><tr><td><p>EAP </p></td><td><p>15.3 </p></td><td><p>40.2 </p></td><td><p>48.7 </p></td><td><p>37.3 </p></td><td><p>1.8 </p></td><td><p>4.0 </p></td><td><p>17.8 </p></td><td><p>34.2 </p></td></tr><tr><td><p>ECA </p></td><td><p>0.1 </p></td><td><p>0.6 </p></td><td><p>8.6 </p></td><td><p>13.2 </p></td><td><p>0.1 </p></td><td><p>0.3 </p></td><td><p>12.6 </p></td><td><p>54.8 </p></td></tr><tr><td><p>LAC </p></td><td><p>35.4 </p></td><td><p>38.2 </p></td><td><p>29.8 </p></td><td><p>39.8 </p></td><td><p>16.9 </p></td><td><p>14.1 </p></td><td><p>38.4 </p></td><td><p>137.5 </p></td></tr><tr><td><p>MENA </p></td><td><p>42.5 </p></td><td><p>10.1 </p></td><td><p>7.4 </p></td><td><p>3.5 </p></td><td><p>32.5 </p></td><td><p>5.7 </p></td><td><p>12.7 </p></td><td><p>16.8 </p></td></tr><tr><td><p>SAR </p></td><td><p>0.6 </p></td><td><p>2.1 </p></td><td><p>1.5 </p></td><td><p>2.3 </p></td><td><p>0.1 </p></td><td><p>0.3 </p></td><td><p>0.8 </p></td><td><p>2.9 </p></td></tr></tbody></table> <p>Source: World Bank, Global Development Finance, 2002. </p> <p>4. Such an overall picture changes once again when the sizes of the regions are taken into account. On a per capita basis, the achievements of Latin American and Caribbean countries over-shadow those of all other countries, while the performance of countries in South Asia, though improving, still lags far behind. (Table 2B.) </p> <p>2 </p> <p>1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 </p> <p>2001e </p> <p>5. What these basic facts tell us is that more than any other economic forces, FDI is driving the process of globalization by creating an increasingly tighter global production network. However, there are great discrepancies in the extent to which countries take part in this network. Not only significant gaps exist between developed and developing countries and among the different regions of the developing world, large and increasing disparities prevail even within the same region. (Table 3.) This phenomenon leads us to many questions: What are the roles of FDI in economic development? What determines the size and location of FDI flows? And what the states can do to reap the benefits of FDI while avoiding its negative impacts in this globalized world? </p> <p>Table 3: Standard Deviations in FDI Flows within Each Region (US$ millions) </p> <p>Source: IMF International Financial Statistics, 2002. </p> <p>6. This paper attempts to provide some insight to these questions through a brief review of the existing evidence on FDI. The role of FDI in economic development is the center of the discussion and is analyzed in depth in the next section. Both its positive and negative impacts are examined, as well as the channels through which FDI interacts with local economies. The paper then reviews the vast empirical evidence on the determinants of FDI flows, which provides guidance on the pre-conditions that the states need to create to draw out the positive forces of FDI and to prevent its negative effects from harming their economies. </p> <p>II. The role of FDI in Economic Development </p> <p>7. Economic development is an all-encompassing concept. It centers on economic and social progress, but also entails many different aspects that are not easily quantified, such as political freedom, social justice, and environmental soundness.1Without a doubt, all these matters combine to contribute to an overall high standard of living. However, empirical evidence has amply demonstrated that all these varied elements of economic development correlate with economic growth. That is, as a general rule, countries with faster economic growth have more rapid improvement in health and education outcomes, progressively freer political system, increasingly more equitable distribution of wealth, and enhanced capacity for environmental management. Therefore, while economic growth does not bring about automatically other aspects of social, institutional and </p> <p>1The United Nation Charter of 1944. </p> <table><tbody><tr><td> </td><td><p>1980 </p></td><td><p>1985 </p></td><td><p>1990 </p></td><td><p>1995 </p></td><td><p>2000 </p></td></tr><tr><td><p>AFR </p></td><td><p>304 </p></td><td><p>302 </p></td><td><p>301 </p></td><td><p>366 </p></td><td><p>318 </p></td></tr><tr><td><p>EAP </p></td><td><p>214 </p></td><td><p>392 </p></td><td><p>1,014 </p></td><td><p>7,934 </p></td><td><p>9,010 </p></td></tr><tr><td><p>ECA </p></td><td><p>- </p></td><td><p>- </p></td><td><p>68 </p></td><td><p>1,120 </p></td><td><p>1,960 </p></td></tr><tr><td><p>LAC </p></td><td><p>485 </p></td><td><p>463 </p></td><td><p>555 </p></td><td><p>1,919 </p></td><td><p>6,329 </p></td></tr><tr><td><p>MENA </p></td><td><p>725 </p></td><td><p>258 </p></td><td><p>446 </p></td><td><p>544 </p></td><td><p>661 </p></td></tr><tr><td><p>SAR </p></td><td><p>26 </p></td><td><p>47 </p></td><td><p>95 </p></td><td><p>760 </p></td><td><p>790 </p></td></tr></tbody></table> <p>3 </p> <p>environmental improvements, without economic growth, there is limited prospects for such achievements. </p> <p>8. In this context, the paper examines the role of FDI in economic development as a key ingredient for successful and suXXXXXXXXX XXXXXXXX growth XXX as part of a mechanism to XXXXXX XXXXXXXXXXX. This section XX XXX XXXXX XXXX to highlight XXX XXXX XXXXXXXXX channels XXXXXXX XXXXX XXX makes a significant XXX irreplaceable XXXXXX on XXX XXXXXXXX XXXXXXXXXXX XX the host XXXXXXXXX. XX the same XXXX, it XX important XX recognize that, like all things, XXX XX XXX all XXXX XX XXX. A XXXXXXXX XXXXXXXXXX is devoted XX the potential negative XXXXXXX of XXX flows on XXXX XXXXXXXXX. </p> <p>X. An XXXXXXX to Economic XXXXXX </p> <p>X. The XXXXXXXXX for XXXX XXXXXX XXXXXX has expanded drastically XXXX time. Before the XXXXXXXXXX XXXXXXXXXX, it XXXX XXXXXXXX XXXXXXXXX some 350 XXXXX for income XXX XXXXXX XX double. XX XXX XXXXXXXXXX revolution XXXXXXXXXXX in XXX XXXXXXXXXXX, XXXXXXX, XXX XXXX country, XXX able to XXXXXX its per XXXXXX XXXXXX in just XXXX XX XXXXX. XXXXX XXX XXXXX War II XXX especially towards XXX end of the twentieth century, many XXXXXXXXXX XXXXXXXXX, XXXX as Japan, XXXXXXXX, XXXXX, Ireland, XXX the XXXX performing XXXX XXXXX economies, XXXXXXX to double XXX capita income in XXXX XXXX 10 XXXXX. (XXXXX X.) XXX the first XXXX in history, it is XXX XXXXXXXX XXX a XXXX person from an XXXXX-XXXXXXXXX country XX XXXX from poverty XX a XXXXXXXXXX XXXXXXXXXXX life within a XXXXXX life span. </p> <p>Table X: XXXX XXXXXX to XXXXXX Income </p> <p>XXXXXX: XXXXXX (XXXX). </p> <p>10. Just XXXX XX it XXXX makes such rapid XXXXXXXX XXXXXXXX? Economic XXXXXXX offer XXXX potential explanations. According XX one recent XXXXXX XXXXXX, long XXXX XXXXXXXX growth can be XXXXXXXXX as XXX XXXXXXXXXXX XX growth in its XXXXXXX, i.e. the increases in factor XXXXXX (capital XXX labor ) and in XXXXX factor productivity (XXX), which XXXXXXXX XXXXXXXXXXXXX XXXXXXXX XXX other efficiency XXXXXXXXXXXX in XXXXXXXX utilization.2In XXXX “endogenous” XXXXXX XXXXXXXXX, FDI has shown its ability to contribute XXXXXXXXXXXXX to XXX three components XX growth: XXX increases capital XXXXX, boosts human XXXXXXX accumulation (XXXXXX usually XXXXXXXXXX in XXXXX XXXXX), XXX speeds XX XXXXXXXXXXXXX XXXXXXXX in host XXXXXXXXX. Nevertheless, XXX XXXX XXXXXX impacts of FDI on XXXX XXXXXXXXX are XXXXXXX XXX role in XXX XXXXXXXXXXXX XX investment </p> <p>XXXXX XXXXXXX on growth accounting XXXXXX XXX be found in XXXXXXXX, A. (XXXX), “Growth XXX XXXXXXXX in XXXXXXXX XXXXXXXXXX XXXXXXXXX: XXXXXXXXXX XX XXXXXXXXXXXX assessment,”XXXXXXX XX Economic Literature, Vol. XX; XXX Barro, X.J. (1998) “XXXXX on growth accounting,” XXXX Working XXXXX No. 6654. </p> <table><tbody><tr><td><p>XXX-Industrial Revolution </p></td><td><p>350 years </p></td></tr><tr><td><p>XXXXXXX, 1st Industrial XXXXXXXXXX </p></td><td><p>175 XXXXX </p></td></tr><tr><td><p>Britain, XXX XXXXXXXXXXX </p></td><td><p>65 XXXXX </p></td></tr><tr><td><p>Fast developers, XXXX World War XX </p></td><td><p>10 years or XXXX </p></td></tr></tbody></table> <p>X </p> <p>XXXXXXX XXX the XXXXXX of TFP of the recipients. These two impacts are discussed separately below. </p> <p>1. FDI XXX XXXXXXX XXXXXXXXX </p> <p>11. XXXX XXX Golden Age investment XXXX XXXXX World XXX XX to the East XXXXX XXXXXXXX XXXXXXXX in the 1980s, XXXXX is XXXXX XXXXXXXX to demonstrate XXXX investment is a XXX ingredient to sustained XXXXXX. XXXX XXX last XXX decades in XXXXXXXXXX, FDI XXX XXXX to XXXX a growing XXXX in XXXX XXXXXXXXXX XXXXXXXXX’ total XXXXXXXXXX. (XXXXXX X.) However, XXXXXXXX as the XXXX in the importance of XXX may seem in XXXX XXXXXXXXX’ XXXXXXXX XXXXX, XXX is only XXXX XX XXX total financing XX foreign XXXXXXXXX in host XXXXXXXXX. XX XXX same XXXX that XXXXXXX XXXXXXXXX mobilize XXXXXXXXX XXXXXX XXXXX own corporate systems, their affiliates can XXXX raise funds through XXXXX, XXXXX, XXX equity XXXXXXXXX. XX XXX extent that these XXXXXXX XXX in XXX international capital markets, they XXXXXXXX XXX total XXXXXXX of XXXXXXX financial XXXXXXXXX XXX development. Indeed, as XXXX XXX United XXXXXX XXXXXXXXXXXXX XXXXXXXXXXXX suggest, the XXXXX XX external resources XX host XXXXXXXXX due XX the presence XX foreign enterprises often XXXXXX FDI flows alone.X </p> <p>Figure X: XXXXX XX XXX XX XXXXX Fixed XXXXXXX XXXXXXXXX (%) </p> <p>18 XX XX XX 10 </p> <p>X X X X X </p> <p>XXX EAP </p> <p>ECA LAC XXXX SAR </p> <p>XXXXX 1980s Late XXXXX Early XXXXX Late XXXXX </p> <p>Source : World XXXX, XXXXX XXXXXXXXXXX Report, 2002. </p> <p>XX. XXXXXXXXX, XXXXXXX transnational corporations XXXXXXXXX XXXX XXXXXX XX a wide XXXXXXX XX XXXXXXXXX XXXXXXX, the risk-adjusted XXXX of capital XX usually XXXXX for XXXX XXXX XXX domestic XXXXX XXXX developing countries. XXXX XXXXXXXXX XXXXXXX XXXX XX be XXXX XXXXXXXXXX than other firms to XXXXXXXXXX opportunities XXX XXXXXXXXXX. </p> <p>XXXXXXX, World Investment XXXXXX, 1999. </p> <p>5 </p> <p>Consequently, they XXX XXXXXXXXX XXXXXXXX for which XXXXXXXX XXXXXXXXX XX XXX XXXX the XXXXXXXXXX to assume or XXXXX XXX XXXXXXXXXX XXX XXXXX for XXXX country XXXXX. XX XXXX, XXXX XXXXXXX XXX investment XXXXXXXXX in host countries. With time, conditions XXXXXXXXX XX domestic XXXXXXXXX XXX be established in XXXXXXXXXX that are XXXXXX XXXXX XXXXXXX reach. In such XXXXX, FDI also XXXXXX to XXXXXXXXX domestic XXXXXXXXXX, XXXXXXX XXXXXX the total host XXXXXXX XXXXXXXXXX further. Empirical XXXXXXX lend support to such “crowding in” effects XX FDI. In XXXXXXXXXXX XX al (XXXX), for example, it XXX estimated XXXX XXX total XXXXXXXX in investment XXX between 1.X and 2.3 XXXXX XXX XXXXXXXX in XXX XXXXX of XXX.4 </p> <p>XX. XXXX XXXXXXXXXXX, FDI not only adds to XXXXXXXX financial resources for host XXXXXXX development, it is also more stable XXXX other forms of financing. Typically, XXX is XXXXX XX a XXXX-term XXXX XX XXX market, the XXXXXX XXXXXXXXX XXX the structural characteristics XX the recipient XXXXXXXXX. It XX XXXX XXXX prone to XXXXXXXXX in XXXXXXX XXXXXXXXXX XXXX XXXX lending or XXXXXXXXX flows. XXXX feature XX FDI is clearly XXXXXXX XXXX Figure 4, which XXXXXXXX XXX XXXXXXXXXXX of variations (the higher the XXXXX, the XXXX volatile the resource flows) of FDI XXXX XXXX XX portfolio investments and XXXXX XXXXX XX private financial XXXXX (XXXXXX XXXX) to developing countries between 1980- XXXX. </p> <p>XXXXXX 4: XXXXXXXXXX XX XXXXXXX Flows in XXXXXXXXXX XXXXXXXXX </p> <p>X.X 6.X 5.0 4.X X.X X.X 1.0 0.X </p> <p>XXXXX 1990s 1980s AFR XXX ECA </p> <p>XXXXX 1980s </p> <p>1990s 1980s LAC MENA XXX </p> <p>1990s XXXXX </p> <p>1990s </p> <p>1980s 1990s </p> <p>FDI Portfolio Other </p> <p>XXXXXX: World XXXX, Global XXXXXXXXXXX XXXXXXX, 2002. </p> <p>14. XXXXXXX, FDI XX a XXXX more XXXXXX XXXX XX XXXXXXXX XXXXXXXXX XXXX all XXXXX XXXXX XX XXXXXXXXX flows. XXX XX the XXX XXXXXXXXX for which data are available, XXXX XX XXXXXXXXX XXXXXXXXXXX XXXX volatility in their FDI XXXXXXX XXXX other forms of XXXXXXXX </p> <p>XXXXXXXXXXXX, E. XXX J. X. XXX (XXXX), “How XXXX foreign direct XXXXXXXXXX affect XXXXXXXX growth?” NBER XXXXXXX Paper No. 5057. </p> <p>X </p> <p>XXXXXXX financing during XXX 1980s, and this XXXXXX XXX reduced to 22 in the XXXX XXXXXXXXX 1990s. XXXX recent data further confirm the resilience XX FDI flows: XXXXXX continues XX absorb XXXXX XXXXXXX of XXX in the first XXXX XX XXXX XXXX – it XX XXX XXXXXX X recipient of XXX XXXXX XXX developing XXXXXXXXX (after XXXXX) - XXXXXXX the current XXXXXXXX in XXXX XXXXXXX. </p> <p>15. XXXXXXX, even XXXXXX FDI may have a XXXX-creating XXXXXXXXX, it is essentially XXXXXX investment.XXXXXXXX XXX XXXXXXXXXXX only XXXX a project XXXXXX XXXXXX and XXXX of the profits is routinely XXXXXXXXXX in XXX XXXX country. As such, most of the XXXXX are born XX XXX XXXXXXXXXXXX XX the foreign companies. This has marked advantage over bank XXXXXXX, which must be XXXXXX with fixed XXXXXXXX regardless XX XXX XXXXXXXXXXX of XXX project XXX which the XXXX XXX XXXX. XXXXXXXX, XXXXXXXXX often XXXX XXXXXXX taxpayers XX XXXX XXXX harmless XXXX projects fail. This is XXXXXXXXXX true in times of XXXXXXXX XXXXXXXXX XXXXXX, when XXXXXXXXXX XXXX-XXXX XXX XXXXXXXXX XXXXXX and obtained by XXX XXXXX, adding XX the XXX XXXXXXX XX XXXX country taxpayers. Therefore, FDI will by definition XXX lead XX a debt XXXXXX XXX XXXX XXXXXX XXXX XXXXX XX an XXXXX. </p> <p>X. FDI and XXXXXXXXXXXX Growth </p> <p>16. XX traditional XXXXXXXX thinking, productivity XXXXXX XXXXXXXX the contribution of exogenous technological changes XX economic XXXXXX. XXXXXXX, new XXXXXXXXXXXXXX XX the growth process, XXXXXXXXXX with the XXXXXX XX the XXXXXXXXXX XXXXXX theory, call for XXXXXXX in such an interpretation. Depending on the XXXXXX XX XXX technology (labor or XXXXXXX XXXXXX), XXX XXXXXXXXX XX XXX XXXXXXX, and the ease of substitution between factors XX production, technological XXXXXX XXX XX either more or XXXX XXXX XXX growth. At XXX same time, XXX XXXXXXXXXX XX the “soft” XXXX XX technological advance – organizational XXXXXXXXX, managerial XXXXXXXXX, XXXXX XXXXXXXXX, XXX. – XX XXXXXXXXXXXX recognized XX an XXXXXXXX XXXX XX the whole technological XXXXXXX XXXXXXX, contributing to the XXXXXXX productivity growth. </p> <p>XX. Whatever XXX XXXXXXX XXXXX of XXXXXXXXXXXX XX XXXXXXXX XXXXXX, the importance XX technological XXX organizational advance XXX XXXX been XXXXXX XXXXXXXXXXX. In XXX long XXX-Industrial Revolution period, a long XXXX XXXXXX XXXX XX X.2 percent XXX XXXX XXX XXXXXXXXXX XXXXXXXXXX. XXX technological XXXXXXXXXXXX in XXXX 18thcentury Britain XXXXXXX the XXXXXX potential, but it XXX still lackluster XXXXXXXX XX the 8 percent annual growth XXXX in the XXXX performing East XXXXX XXXXXXXXX in XXXXXX XXXXXXX. XXXX like XXX fast XXXXXX in postwar XXXXXX, such XXXXX XXXXXXXX XXXXXX of XXX developing countries in XXX XXXXXX half of the 20thcentury XXXX XXXX XX the reduction in barriers to XXX emulation of technical XXX XXXXXXXXXXXXXX innovations from XXX world’s leading countries. XXXXXX, XXXXXX XXXX re-inventing what had XXXXXXX existed XXXXXXXXX, those developing XXXXXXXXX XXXX were able to import and XXXXXXX the XXXX practice from more advanced XXXXXXXXX enjoyed unprecedented XXXXXXXX XXXXXX. For developing world at XXXXX, XXX </p> <p>5The XXXX-creating XXXXXXXXX of XXX XXXXXXXX XXX less than 18 percent XX XXX inflows of FDI XX developing countries between 1990-1998. XXXXXX, XXXXX Investment Report, 1999. </p> <p>X </p> <p>XXXXX and efficient XXXXXXXX and adoption XX “XXXX practice” across borders XXXXXXX the very essence of XXXXXXXX development. </p> <p>XX. XXXX XXXXXXXX XXX XX XXXXXXXXXXX XXXXXX XXXXXXX XX XXXXXXX mechanisms. Foreign buyers XX XXXXXXX XXX provide XXX XXXXXX for XXXXXXXXX, XX well as some level of XXXXXXXXX XXXXXXXXXX to XXXXXXXX XXXXX. XXXXXXXX capital goods XXX embody improved technology. XXXXXXXXXX licensing allows XXXXXXXXX to acquire XXXXXXXXXXX. Expatriates XXXXXXXX knowledge. Yet, arguably the XXXX XXXXXXXXX means XX transferring XXXX XXXXXXXX is FDI as XXXXXXX XXXXXXXXXX tends to XXXXXXX and integrate XXXXXXXX XXXX XXX XX XXX XXXXX XXXXXXXXXX.6In XXXX, the XXXX XXXXXXXXX XXXXXXX of FDI is XXXX it provides, XXXXX with financial XXXXXXXXX, access to XXX whole range of XXXXXXXXXXXXX, organizational XXX XXXXX XXXXXX, as XXXX XX the markets XX the XXXXXX XXXXXXX. XXXX few exceptions, XXX vast majority XX XXX XXXX-XXXXXXX economies XXXXXX XXXXXXX on FDI XX jump XXXXX and sustain their XXXXX economic XXXXXXXXXXXXXX.7 </p> <p>XX. FDI XXXXXXXXX XXXX XXXXXXXX in XXX ways: internal transfers XX technology and XXXXXX XX the foreign affiliates in XXX XXXX country, XXX XXXXXXXXXXXXX diffusion to a XXXXX section of companies XXX XXXXXXXXXXXX XXXXXX XXX host XXXXXXX. Although the XXXXXXXX transfers XX best XXXXXXXX XXXXXXX principally XXX XXXXXXXXXX, XX the XXXXXX XXXX XXXXXXX-XXXXX XXXXX XXXXXXXXXX domestic counterparts, XXXXX presence XXXXX constitutes a valuable XXXXX XX the host XXXXXXX.XXXXXX of all, many of XXX XXXXXXXXXXXX XXX XXXXX XX expensive X&X integral XX XXXXXXX XXXXXXXX that XXXXX XXXXXXXXX will XXX sell XX XXXXXXXXX parties. XXXXXX investments are XXXX the only XXXXXXXXX XXX XXX host country to obtain XXX XXXXXX XXXXXXXXXXXX and XXXXXX XXX XXXXXXXXXX XXXX. XXXXXXXX, because foreign XXXXXXXXXX are XXXXXXXXX XX XXX XXXXXXXXX XX introduce new management XXX XXXXXXXXXXXXXX techniques, XXXXXXX control XXXXXXXXX, and XXXXXXXXX XXXXXXX, they XXXX XX absorb XXXX practice XXXX quickly than XXXXX XXXXX. Thanks XX their lower XXXXXXXX XXXXXXXX, XXX XXXXXXXXXX XXX XXXXX as a test XXXXXX XX XXXXX new approaches in the XXXX XXXXXXX. Finally, XXX many developing XXXXXXXXX, XXXXX XXXXXXXXXXXX XXXX a global company’s international production XXXXXXX XX XXX easiest XXX XXX XXXX to gain XXXXXX XX XXXXXXXX or XXXXXX XXXXXXX. </p> <p>XX. Nevertheless, XXX XXXXXXXX impact XX FDI on domestic economic XXXXXX XXXXXXX on the diffusion of XXXX practice XXXXXXX XXX XXXXX economy XX large. XXXX diffusion XXXXXXX XXXXX XXXXX through four main channels: XXXXXXXX XXXXXXXX XXXX XXXXX XXXXXXXXX (sourcing), forward linkages with XXXXX XXXXXXXXX XXX distributors, XXXXXXXXXX XXXXXXXX </p> <p>6Klein, X., X. XXXXX, XXX B. Hadjimichael (2001), “XXXXXXX XXXXXX XXXXXXXXXX and XXXXXXX reduction,” Policy XXXXXXXX Working Paper No. XXXX, XXX World XXXX. 7Japan XXX Korea XXX essentially XXX only examples XX countries which XXXXXXXX XXXXX XXXXXX with minimal reliance XX XXX. This XXXXXXXX is XXXX XXXXXXXXX XX replicate, especially in countries XXXXXXX a solid skill base, a XXXXXXX entrepreneurial spirit, a capable bureaucracy, XXX XXXXXXXXX XXXXXXXXX regimes. </p> <p>XXXXX studies show XXXX foreign ownership positively correlates XXXX productivity XXXXXXXXX of the firm. XXX XXXXXXXXXXXX, X. and X. K. XXXX (1997), “XXX effects of foreign XXXXXXXXX in Africa: XXXXXXXX from Ghana, XXXXX XXX XXXXXXXX,” XXXX Paper No. XX, The World XXXX.; XXXXXXX, S. XXX B. Hoekman (XXXX), “XXXXXXX XXXXXXXXXX XXX productivity growth in XXXXX enterprises,” XXXXXX Research XXXXXXX Paper XXXX, The World XXXX.; XXX Aitken, B. XXX X. X. XXXXXXXX (1999), XX domestic firms XXXXXXX from direct foreign investment? Evidence XXXX XXXXXXXXX,”The XXXXXXXX Economic XXXXXX, XXX. 89, No. X. </p> <p>8 </p> <p>with local XXXXXXXXXXX, XXX XXXXXXXX with local institutions XXXX XX XXXXXXXXXXXX XXX research XXXXXXXXXX as well XX vocational XXXXXXXX XXXXXXX. XX developing XXXXXXXXX, XXX XXXX XXXXXXXXX channel XX XXXXX XX usually sourcing: XXX XXXXXXXX XX inputs XXX services from local XXXXXXX of foreign suppliers. </p> <p>XX. All XXXXXX (XXXX, quality, XXXXXXXXXXX, XXX.) XXXXX equal, local XXXXXXXXXXX XX generally XXXXXXXXX XXXX arm’s length XXXXXXXXX or in-XXXXX XXXXXXXXXX because proximity XXXXXX XXXXXXXXXXX XXXXX XXX allows for XXXXXXX flexibility and XXXXXXXXXXXXXX. XXXX is XXX XXXXXXXX the XXXXX of XXXXX so XXX XXXXX XXXX XXX XXXXXXXXX XXXXXXX, foreign investors XXXX an XXXXXXXX in XXXXXXXXXX local XXXXXXXXX, helping them XXX XX facilities, raise XXXXXXXXXXXXX XXX skill XXXXXX, obtain XXXXXX, and XXXXXX XXXXXXX. To the host economy, this XX XXXXX one XX XXX most powerful XXXXXXXXX for transmission XX XXXX practice. XXX XXXXXXXXXXXXX XX these suppliers can in XXXX lead to various further spillovers XX XXX XXXX XX the economy XXXXXXX demonstration XXXXXXX, mobility XX XXXXXXX XXXXX, enterprise XXXX- offs, and competition XXXXXXX. </p> <p>XX. The extent to which foreign XXXXXXXXXX XXXXXXXXX XXXXXXXX XXXXXXXX with local suppliers XXXXXX from XXXXXXXX to industry XXX country XX country. XXXXXXXX there is widespread concern in developing countries XXXX foreign XXXXXXXXXX XXXX too limited XXXXXXXXXX XXXX XXX rest of the XXXX economy, XXXXXXX XXXXXXXXX studies have demonstrated XXXX in some XXXXXXXXXX (e.g. XXXXXXXXXX) and in XXXXXXXXX XXXXX XXXXXXXX XXXXXXXX XXXXXXXXXX XXX present, XXXXXXX investors made extensive efforts to XXXXXXX prospective XXXXXXXXX and XXXXXX even XXXX XXXXXXX XX local XXXXXXXXX XXXX domestic firms.X </p> <p>XX. XXXXXXXXXX, the diffusion XX best practice in XXX host country depends XX the XXX domestic XXXXXXX work, XX well as the absorptive capacities of XXXXXXXX XXXXX. Where the XXXXXX incentive XXXXXXXXXX are severely distorted, FDI XXXXXXX XXXX tend XX XX XXXX XXXXXXXXXX and XXXX-seeking in nature, XXXXXXXX limited benefits to the XXXX country. Similarly, XXXX the XXXXXXXX knowledge base is thin XXX information XX asymmetric, few XXXXXXXXX XXXXXXXX will be XXXXXXXXXXX for XXXXXXXXXXXX XXXX XXXXXXXX. </p> <p>X. A XXXXXXXXX XXX XXXXXX XXXXXXXXXXX </p> <p>24. XX XXX same XXXX that FDI XXXXXX as a catalyst for rapid economic growth by enabling XXXXXXXXXX XXXXXXXXX to leapfrog developmental XXXXXX XXX XX XXXXX up with XXXXXXXX XXXXXXXXX, it XXXXXXXXXXX XXXX an XXXXXXXXX XXXXXXXX XXX improved XXXXXX XXXXX. In XXXX respect, XXX plays a major role in the XXXXXX development XXXXXX of the host XXXXXXXXX. Here, two XX XXX main XXXXXX XXXXXXX of development – XXXXXXXXXX XXX environment - XXX discussed in XXXXXX. </p> <p>9See XXXXXXXX in XXXX, S. (1980), “XXXXXXXX XXXXXXXXX XXXXXXXX in XXXX: an XXXXXXXXX study,”XXXXXX Bulletin XX XXXXXXXXX XXX Statistics, Vol 42, No. 3. on XXXXX; UNCTAD (2000),XXXXX Investment Reporton Argentina, XXXXXX and XXXXXXXX; XXXXX G. and H. Tan (XXXX),Interfirm linkages XXX productivity growth: XXXXXXXX form Malaysian XXXXXXXXXXXXX, The XXXXX XXXX; XXX Barnes, X. XXX R. XXXXXXXXX (XXXX), “XXXXXXXXXXXXX and the death of local XXXXX? XXXXXXXXXX component XXXXXXX in XXXXX XXXXXX. </p> <p>9 </p> <p>X. Employment XXX XXXXX XXXXXXXX </p> <p>XX. XXXXXXXXXX XXXXXXX XXX secure employment XXX XXXXXX ranked XXXX XX a XXXXXX XXXXXXXXX for XXXXXXXXXX countries. XX XX a XXXXXXXXX means XX achieve an XXXXXXXXX distribution XX income and higher XXXXXXXX of welfare for the XXXXXXXX of XXX XXXXXXXXXX. XXXXXXX XX the XXXXXXX features of foreign XXXXXXXXXXX – XXXX XXXX XX XX XXXXXX in size, with greater technological sophistication, facing XXXX XXXXXXXXXXX XXXXXXXXX in XXXXX XXXXXXX XXXXXXX, XXX having XXXX XXXX XX maneuver in their XXXXXXXXXX as compared to domestic XXXXXXXXXXX – XXX often XXXXX a unique role in employment XXXXXXXX and upgrading of XXX host countries. </p> <p>26. XXXXX XXX three basic XXXXXXXXXX XXX FDI to generate employment in the XXXXXXXXX countries. First, foreign affiliates employ XXXXXX in their domestic operations. XXXXXX, XXXXXXX XXXXXXXX XXX XXXXXXX linkages, XXXXXXXXXX is created in enterprises that XXX XXXXXXXXX, subcontractors, or XXXXXXX providers XX XXXX. Third, as FDI-related industries expand and XXX XXXXX XXXXXXX grows, employment is also created in XXXXXXX and activities XXXX are XXX XXXX XXXXXXXXXX XXXXXX to XXX original FDI. </p> <p>XX. Comprehensive data are absent XXXX respect XX XXX XXXXXXXXXX generated by FDI in developing countries. Estimates put XXX XXXXXX XXXXXXXXXX XXXXXXX by foreign affiliates at XXXX XXXX two percent XX the labor force in most developing countries, XXXXXXXX the share XXXXX XX higher when XXXX formal employment is XXXXXXXXXX and it is XXXXX substantial in the modern XXXXXXXXXXXXX XXXXXX.10In Thailand, XXX example, XXX accounts XXX about 17 percent XX XXX XXXXX XXXXXXXXXXXXX XXXXXXXXXX in XXX XXXX XXXXX, XX well as a growing share XX XXX employment generation in the XXXXXX provinces XXX away XXXX XXXXXXX.11Indirect XXXXXXXXXX created XX XXXXXXX XXXXXXXXXX, XX contrast, can be large XXXXX the XXXXXXXXXXX between FDI XXX XXX local XXXXXXX XX intense. XXXXX XX a series of eight case XXXXXXX in XXXX XXXXXXXXX and developing countries, XXX study estimated that when XXXX the XXXXXXXX employment XXXXXXXXX by backward XXX XXXXXXX linkages XXX XXXXXXXXXX, X.6 jobs were XXXXXXX XXXXXXXXXX for each XXX XXXXXXX directly by a XXXXXXX affiliate.12 </p> <p>28. XXXXX XXXXXXXXXXXXX XXXXXXXXXX creation XXXXX high in XXX policy agenda XX XXXXXXXXXX countries, XXXXXXXXXXXX the jobs created through FDI preoccupies XXX XXXXXX makers with equal weight. XXXXXXX the XXXXXXX XXXXXX XXXX foreign XXXXXXXXX are attracted XX XXXXXXXXXX countries XXXXXXXXXXX, or XXXX XXXXXX, XX XXX low XXXXX XXXXX, realities point to XXX XXXXXXXX. XX XXXX, XXXXX is XXXXXXX agreement that XXXXXXXXXXXXX XXXXXXXXX XXXXXXX employment on XXXXXXXXXX that, on the XXXXX, compare favorably with the XXXXXXXXXX </p> <p>XXXXXXXX,World Investment Report, 1994. XXXXXXXXX, P. XXX X. Sherman (1998). “the Broader XXXXXXX of foreign direct XXXXXXXXXX XX XXXXXXXX XXXXXXXXXXX in Thailand: corporate responses.” XXXXX prepared XXX XXXX XXXXX Roundtable on FDI XXX its Impact XX Poverty Alleviation, December XXXX. 12Dupuy, C XXX X. Savary (XXXX). “XXX effets XXXXXXXXX XXX entreprises multinationales XXX l’emploi des XXXX d’XXXXXXX. » ILO XXXXXXX XXXXX No. XX. </p> <p>XX </p> <p>practices in XXXX countries. In particular, XXXX-established large XXXXXXXXXXXXX XXXXXXXXXXX XXX XXXX XXXXXX to comply XXXX XXXXXXXXXXXXX labor XXXXXXXXX and XXXXXX good labor XXXXXXXXX. Indeed, XXXXXXX of their size, XXXXXXXXXXXXX XXXXXXXXXXXXXX, the XXXX to XXXX XXXX product XXXXXXXXX, and exposure to international scrutiny, XXXXXXX XXXXXXXXXX XXXX XXXX to XX XXXXXXXX XX offer higher remuneration, superior XXXXXXX conditions, XXX XXXX XXXXX upgrading XXXXXXXXXXXXX XX their workers XXXX domestic firms. </p> <p>29. In XXXXXXXX to XXXXXXXXXXXXX XXXXXXXXXX, best XXXXXXXXXX XXXXXXXXX can be transferred XX host countries when XXX XXXXXXX XXXXXXXXXX XXX XXXX integrated XXXX XXX XXXXX economy. In this respect, the cross-border diffusion of modern XXXXXXXXXXXXXX and managerial XXXXXXXXXX XXX the most impact on the working XXXXXXXXXX and human resource development styles of the XXXXXXXXX countries. XX creating a XXXX efficient and XXXX productive XXXX pattern, FDI XXXXX to XXX XXX XXXXXXXXXX XXXXX XXX XXXXXX labor standards in XXX XXXXXXXX XXXXXXXXXX and localities. XX XXXXX, for example, it was through foreign XXXXXXXXXXX XXXX a new XXXX of XXXXX-XXXXXXXX system XXX XXXXX XXXXXXXXXX in XXX XXXXX 1980s, which linked remuneration XXX XXXXXXX to labor productivity. The XXX reward XXXXXX XXX so XXXXXXXXXX XXXX it eventually led XX XXX country-wide XXXX XXX labor XXXXXX reforms. </p> <p>XX. XXXXXXX, as XXXX of XXX cross-border transfer of its human resource management practices, FDI also brings with it the XXXX of modern industrial relations that XXX XXXXXXXXX in advanced XXXXXXXXX.XXXX general, XXXXXXX investors adapt XXXXX XXXXXXXXXX XXXXXXXXX XXXXXXX XX the legislations and practices XX their XXXX countries. In XXXXX so, XXXXX approach to XXXXXXXXXX-XXXXX XXXXXXXXX XX XXXXXXXXXX by the XXXXXXXXX of the host country XXXXXXXXXXX. The XXXXXX character XX FDI, XXXXXXX, suggests that large foreign XXXXXXXXX may XXXXXX practices that differ in some XXXXXXXX XXXX those of XXXXXXXXXX enterprises in a XXXX XXXXXXX. XXXXXXXXXXXXXXX, XXXXX is a broad trend XXXXXXX increased communication XXXXXXX XXXXXXXXXX XXX workers. XX multinational XXXXXXXXXXXX XXX typically firms that XXXXXX in XXXXX XXXXXXXXX XXX deal with XXXXXXX’ organizations with a view towards XXXXXXXXXXXX an effective relationship, industrial relations XXXXXXXXXXXX do not arise more XXXXXXXXXX in foreign XXXXXXXXXX XXXX in XXXXXXXX XXXXX. Conversely, to XXX extent XXXX XXXXX labor XXXXXXXXX XXX more consultative in nature XXXXX XX XXXXX XXXXXXXXXXXXX XXXXXXXXXXX, XXXXX XXXXXXX XX industrial relations XXXXX becomes a model for XXXXXXXX firms and XXXX XXXX XX XXX XXXXX force that is not XXXXXXXXX. </p> <p>X. Environmental XXXXXXXXX </p> <p>31. XXX XXXXXXXXXXXXX degradation in XXXXXXXXXX XXXXXXXXX XX the combined consequence of XXX XXXXXXXXXX XXX consumption XXXXXXXX XXXX XXXXXX the countries XXX in their export XXXXXXX. XX a globalized XXXXX economy, the XXXXXX XX XXXXX XXXXXX are XXXXXXXXX, with XXX XXXXXXX XX another conduit. XXXXXXXXXXX, while it XX undeniable XXXX there have XXXX XXXXX where XXXXXXXX XXXXXXXXX XXXXXXXX polluting XXXXXXXXXX XX countries or regions out of XXXXXXXXXXXXXX XX XXXX XXXXXXXXXXXXX standards, there is no conclusive XXXXXXXX that this XX the XXXX. Overall, FDI flows XX places where the XXX </p> <p>13This is most XXXXXXXX for investors from West XXXXXXXX countries. </p> <p>XX </p> <p>XXXXXXXXXXXXX XX XXXXXXX, XXX XXXXX XXXXX are XXXXXX. XXXX is XXX not only XXXX XX the world’s FDI flows to XXXXXXXXX XXXXXXXXX, where XXXXXX costs XXX higher and XXXXXX standards more XXXXXXXXX, available data from the United States show XXXX XXX share XX pollution-XXXXXXXXX production is the highest in XXXXXXXXX countries as XXXX.XXXXXXXXXXX, there XX no XXXXXX XXXXXXXX XX support XXX argument XXXX XXX is XXXXXXX XXXXXXXX on XXXXXXXXXX XXXXXXXXX to XXXXX their environmental XXXXXXXXX so as not to XXXX investment XXX XXXX. </p> <p>XX. There have been XXXXXXX studies XXXX attempt to test the “pollution XXXXX” hypothesis. XXXX the XXXXXXXXXXX XXXXXXXX, which XXXXXXXX the XXXXXXXXXXXX XXXXXXX outward XXX XXX environmental standards XX XXXX XXXXXXXXX, XXX XXX location choice approach, XXXXX embeds environmental XXXXXXXXXX XX a determinants XXX FDI flows, fail to XXXXXXX this XXXXXXXXXX.XX Only in XXXXXXXX case studies were examples XXXXX XX sustain XXX XXXXXX that XXXXXXXXXXXXX standards XXXX a XXXXXX in XXX location XXXXXXXXX. XXXXXXX, it should XX XXXXXXX out that XXXXX XXXX XXXXXXX suffer XXXX selection bias XXXXXXX only XXXXX that have XXXXXXXX XXXXXXX location were documented.16 </p> <p>33. XXXXXXXXXXX, XXXXXXXXXXXXX XXXXXXXXX XXX an input into XXX production XXXXXXX. The impact of industrial XXXXXXXXXX on the environment is XXXX XXXXXXX XXXXXX XX XXX XXXXXXXXXX XXXXXXXXXX XX firms and their capacity XX XXXXXX XXXXXXXXXXXXX XXXXX. Environmental XXXXXX XXXXX XX be XXXXXXXX in low XXXXXXXXXXXX operations XXXX employ XXXXXXXX technology, outdated work XXXXXXX, poor human XXXXXXXX XXXXXXXXXX XXXXXXXXXX, and inefficient energy use. XX XXXX XXXXXXX, on account of its XXXXXXXX XXXXXXXXXXXXX XXX management base, FDI XX XXXXXXXX better XXXXXXXXXX XX XXXXXX higher environmental XXXXXXXXX XXXX XXXXX domestic XXXXXXXXXXXX. XXXXX is indeed some evidence to show that XXX majority XX XXXXXXX XXXXXXXXX rarely XXXXXX XXXXX than is XXX XXXXXXX XXXXXXXX in XXX XXXXXXXXX XXXXXX. Rather, they tend XX XXXXXXX better environmental XXXXXXXXX and contribute XX an improvement XX local XXXXXXXXXXX.17 </p> <p>34. Therefore, instead of being XXXXXX as a cause for XXX “XXXX XX XXX bottom” in developing XXXXXXXXX’ effort XX generate XXXXXX, FDI should be XXXXXX XX a force to bring XXXXX XXXXXX XXXXXXXXXXXXX XXXXXXXXX. XXXXXXX of their connections XX XXX XXXXXXXXX XXXXX, XXXXX XXXXXXXX and environmentally XXXXXXXXX markets XXXX XXX XXXXXXXXX XXXXXXXXXXXXX regulations XXX environment-XXXXXXXX XXXXXXXX, FDI can become a conduit XXX XXXXXXXXXXXX clean technology XXX sound XXXXXXXXXXXXX management XXXXXXX. </p> <p>14UNCTAD,World XXXXXXXXXX Report, 1999. XXXXX XXXXX J. (1997), “XXXXXXXXXXXXX XXXXXX XXX XXXXXXXXXXXXXXX in a XXXXXXXXXX economy: conceptual XXXXXX XXX a review of the XXXXXXXXX XXXXXXXX”, in OECD Globalization XXX XXXXXXXXXXX: XXXXXXXXXXX XXXXXXXXXXXX; XXX Eskeland G. XXX A. XXXXXXXX (1997), “XXXXXX XX greener pastures? Multinational and XXX pollution haven XXXXXXXXXX” XXX World Bank, XXXXX. XXXXXXXX XX. cit. XXXXX XXXXXXX, X. (1987),Multinational XXXXXXXXXXXX, XXX XXXXXXXXXXX XXX XXX XXXXX XXXXX, XXXXX Carolina: XXXX University XXXXX; XXXXXXX, D. (1998),XXXXXXXXX and the XXXXXXXX for the world product, XXXXXXXXX: XXXXXXXXX XXXXXXXXXX Press; XXXXXX, X. (ed.), (1998),XXXXXXX XXXXXXX XXXXX XXX the environment: lessons from XXXXX America,Cheltenham: XXXXXX XXXXX Publishing; XXX XXXXXXX , D. (2001), “Racing XX the bottom? Foreign investment XXX XXX XXXXXXXXX in developing countries,” mimeo, XXX World XXXX. </p> <p>XX </p> <p>C. Potential XXXXXXXX Impacts XX XXX </p> <p>35. As reviewed in XXXXXX in XXX XXXXXXXXXXX XXXXX, FDI has a key XXXX XX XXXX in host XXXXXXXXX’ XXXXXXXX development. XXXX does not mean, however, that FDI can never XXXX XX XXXXXXXXXXX outcomes XXXXX all circumstances. Indeed, even with XXX XXXX XX XXXXXXXXXX, FDI may sometimes produce XXXXXXXXXXXXX XXXXXXX XXXX are XXXXXXX to XXXX XXXXXXXXXX countries. It is also undeniable XXXX, XXXX though XXXX are, some XXXXXXX XXXXXXXXXXX XXX XX XXXXXXXXXX in nature and need XX be properly XXXXXXXXX. XXXX XX XXX negative impacts XX XXX are reviewed in the XXXXXXXXX XXXXXXX. As will be XXXX, in most XXXXX, XXXXX negative effects XXX a XXXXXXXX to the distortions and XXXXXXXXXXXXXX in the XXXXXXXX markets. Therefore, XXXX XXX essentially avoidable with XXXXXXXXXXX XXXXXX tools XXX a XXXXX XXXXXXXXXX XXXXXXXXX. </p> <p>X. XXX “Crowding Out” Effect of FDI </p> <p>XX. Notwithstanding XXX XXXXXXXXX XXXXXXXX XXXX FDI XXXXXXX results in XXXXXXXXXXXXXX more investment XXXX what XXX be XXXXXXX XXX by FDI alone, there is the XXXXXXXXX concern XXXX foreign investments XXX take XXXX the investment opportunities XX XXXXXXXX XXXXX, thereby XXXXXXX XXXX out of business. XXXX a XXXXXXXXX XXX occur in either XXXXXXXXX XXXXXXX or product XXXXXXX. XX the foreign investor finances the XXXXXXX by XXXXXXXXX from the XXXX XXXXXXX financial XXXXXX under XXXXXXXXXX of scarce resources, domestic XXXXXXXX XXXXX may rise as a XXXXXX, which XXX XXXX XXXXXXXXX unaffordable for XXXX domestic firms. Precisely to prevent this from XXXXXXXXX, XXXXX, a country XXXX generally XXXXXXX XXXXXXXX towards FDI, has XXXXXXXX the XXXXX to XXXXX the access of foreign companies XX domestic XXXXXXX XXXXXX. XXXX XXXXXX XXX provision has XXXXX been invoked, its XXXX existence testifies XX XXX unease among XXXXX developing XXXXXXXXX over XXXX XXXXXXXXX XXXXXXXX.XX </p> <p>37. XX XXX XXXXXX the economy in XXXXXXXXXX in which competing domestic XXXXX already exist, XXX XXX well reduce XXXXXXXX investments that XXXXX XXXX been undertaken XX domestic producers. XXXX in XXX XXXXXXXXXX XXXXXX the XXXXXXX reach of domestic XXXXXXXXX, FDI may XXXXXXX investments XX domestic firms XXXXX, with proper XXXXXXXXX, XXXXX XXXXX the XXXXXX XXXXXXXXXXXX. XXX XXXXXXX becomes all the XXXX grave XX the foreign investment deliberately uses predatory practices XX force XXXXXXXXXXX out XX business, or XX XXXXXX their establishment. XXXXXXXXXX in XXXXXX where XXX host governments lack XXXXXXXXX XXXXXXXXXXX policy XXXXX and XXXXXX to keep such behavior in check, a XXXXXX FDI XXXXXXXX may XXXXXXX XXX development of XXXXX capacities. In XXXX XXXXX, crowding out XX FDI does XXX necessarily XXXX an XXXXXXXX reduction in total XXXXXXXXXX, but rather that the increase XX XXX XXXXXXXXXXXXX XX FDI inflows. </p> <p>38. XXXX world evidence suggests XXXX while crowding in or XXXXXXX effects of FDI XXXXXXXX, XXXXXXXX out is XXX XXXXXXXX either. XXXX XXXXXXX XX the domestic market </p> <p>18UNCTAD XX. XXX. </p> <p>XX </p> <p>XXXXXXXXX. In an XXXXXXXXXXX XXXXXXXX XXXXXXX out to investigate this issue, it was XXXXX that XXXXXXX effects dominated in XXXX of XXX countries, while XXXXXXXX in and crowding out XXXXXXXX XXXX equal XXXXXXXXX, taking XXXXX in XX percent XX the countries each.XXX general XXXXXXXXXX is XXXX whereas XXX XXXXXXXXX XX crowding out XXXXXX XX ruled out, it XXXX XXX XXXXXX to be XXX general XXXX. Equally XXXXXXXXXXXX are XXX policy XXXXXXX XX XXXX XXX XXXXXXX. In XXXXX, for example, XXX policy XX restrict foreign investments in XXXXXXX industries indeed led to XXX XXXXXXXXX of XXXXXXXXXX XXXXXXXX XXXXXXXXX. XX Brazil, however, the same policy intervention in XXX XXXXX proved XX be XXX only costly but with XXXXXXXXX XXXXXXX. The message is XXXX that XXXXXXX of trying XX XXXXX the XXXXXXX through “XXXXXXXXXXX”, i.e. XXXXXXXXXXX FDI XXXX entering XXXXXXX XXXXXXX, efforts XXXXXX XXXXXXXXXXX on enforcing XXXXXXXXXXX XXXXXXXXXXX XXXXXXXX XXX the XXXXXXX XXXXXXXXXXX so XX XX prevent abusive practices in XXX domestic markets. </p> <p>X. The XXXXXXX of XXXXXXX XXXXXXX as a Result of FDI </p> <p>XX. Another XXXX-spread XXXXXXX regarding XXX is XXXX XX the XXXXXX that XXXXXXX are XXXXXXXXXXX, XXXX XXXXXXXXXX a financial outflow XXXX has to XX set against the net annual contribution XX FDI inflows to a host XXXXXXX’s balance of payment. This XXXXX XXX XX XXXXXXXXXXXX interest in XXX XXXXX 1970s, XXXX a XXXXXXXX XX developing XXXXXXXXX XXXXX stringent foreign exchange XXXXXXXXXXX. With XXXXXXXXX current XXX capital accounts liberalizaton in many developing countries, XXXX is XXXX XX a concern. XXXXXXX, XX there XXX still a XXXXXX XX XXXXXXXXX XXXX XXXXXXX degrees XX foreign exchange controls, the XXXXXXX XX XXXXXXX issue remains relevant. </p> <p>40. Nevertheless, XXX gravity of the XXXXXXX appears to be restrained. XXXXXXXXXXX of XXXXXXXXXXX earnings and FDI inflows during the 1990s show XXXX XXXX in Africa, XXXXX XXX repatriation ratio XXX the XXXXXXX (an annual XXXXXXX of 75 percent), XXXXX was never a negative XXXXXXXX balance as a result of XXX. Moreover, several indirect XXXXXXX need XX be XXXXX into consideration XXXX XXXXXXXXX the XXXXXXX XX payment impacts XX FDI. As is often XXX case, FDI in XXXXX XXXXXXXXXX generates XXXXXXX XXXXXXXXX XXXXXXX exports, XXXXX XXXXXXX the financial XXXXXXXX of repatriated profits. XXXX XXXX XXXXXXXX in non-XXXXXXXX XXXXXXXXXX, XXX can XXXXXXX XXX competitiveness of tradable XXXXXXXXXX, thus XXXXXXXXXXXX XX XXX overall XXXXXX XXXXXXXXXXX of the XXXX country. XXXXXXXXX, in the long XXX, XXX XXXXXX not XX a cause XXX XXX XXXXXXX XX XXXXXXX XXXXXXX, except in XXXXXXXXX with seriously misaligned foreign XXXXXXXX regimes. XX this XXXX, XXX XXXX solution is not restricting FDI, but rather XXXXXXXXXX the foreign exchange XXXXXXXXXXX XX the XXXXXXXXX. </p> <p>3. Enclave XXXXXXXXX XXXXXXX XX XXX </p> <p>41. XXX most XXXXXX XXXXXXX XXXX regard XX XXX XX XXXXXXXXXXX that XXXX investments XXX narrowly XXXXX, with XXXXXXX overall XXXXXX XX XXX XXXXXXXXX countries, and XXXXXXXXXX only a XXXXX group XX the XXXXXXXXXX. XXXX anxieties are XXXX XXXXXXXXXXX XX the mining XXX other raw material XXXXXXXXXX XXXXXXXX, XXXXX are typically XXXX XXXXXXX intensive XXX </p> <p>XXXX cit. </p> <p>14 </p> <p>XXXXXX a small fraction XX XXX national workforce. XXXX means that few XXXXXXXX, either backward or forward, exist XXXX XXX host XXXXXXXXX, making their indirect effects XX XXX domestic economy XXXXXXXXXX. To XXXX XXXXXX XXXXX, XXXXXX XXXXX inflows of foreign XXXXXXXX XXXX XX XXXXX the real exchange rate XX the host XXXXXXX XXX thus render many non-extraction XXXXXXXXXX unprofitable (the Dutch XXXXXXX). Moreover, XXXX XXXXXXXX XXXXX display XXX revenue XXXXXXXXX for XXXX countries because a large XXXXXXXX of XXXXXX earnings XXXX immediately overseas XX service the XXXXXXX XXXXXXX XXXXXXXXXX.20 </p> <p>XX. Another XXXXXXX XX XXX enclave economies is the Export XXXXXXXXXX Zones (EPZs), which have become a popular strategy in XXXXXXXXXX XXXXXXXXX XX foster exports and to promote employment. XXXX the XXXX XXXXX of XXXXXXXXXX XXX special XXXXXXXXXX granted to XXXXXXXXXXX located in the EPZs, XXXX too XXXXXXX very XXXXXXX linkage with XXX XXXXX economies at XXXXX. In particular, low labor costs and avoidance XX XXXXXX rules and regulations are often XXX main advantages sought XX the XXX in XXXX XXXXXXXXX, who XXXX tend XX XX XXXXXXXXX and have little XXXXXXXXX to transfer XXXXXX or technologies. XXXXXXXXXXXX, even though the XXXXXXXXX XXXXXX and employment benefits XXX XXXXXXXXXX, XXX XXXX-XXXX XXXXXXXXXXXXXX and XXXXXXXX impacts of these zones XXX XXXX certain. </p> <p>XX. However, XXXXXXX XXX XXXXXXX tendency of XXXXXX XXXXXXXX XXX XXXX towards enclave XXXXXXXXX, XXXX does not XXXX XX be the XXXX XXX it is XXX XXXXXX enough XXX developing XXXXXXX governments to shun from the XXXXXXX investments into these XXXXXXXXXX. What they XXXX to XX XX XX create the XXXXX XXXXXXXXXX and proper environment XXX XXXX investors to XXXXXXX XXX XXXXX XX XXXXX XXXXXXXXXX. XX XXX mining and XXXXXXX resource projects, XXX example, XXXXX have been successful examples of XXXXXXXXX which XXXXXXX XX use XXXXXXX XXXXXXXXXXXXX policies XX XXXXX XXXXXXX excessive XXXXXXXX rate XXXXXXXXXXXX XXX sound regulations XX XXXXXXXX the XXXXXXXXXXXXX of XXXXXXXX XXX corruption XXX XX XXX XXX windfall XXXXX for poverty alleviation.21In many developing countries, XXXX XX XXX EPZs are turning into “smart” zones XXXX a XXXXXX XX XXXXXXXXXX XX XXXXXX broader XXXXXXXXXX and skills XXXXXXXX XXXX XXXXXX and outside XXX zones. </p> <p>III. XXX XXXXXXXXXXXX XX FDI XXXXXXXX </p> <p>44. With the rising importance of XXX in world XXXXXXX, XXXXXXXX attempts have XXXX XXXX to isolate XXX factors that explain its XXXX and XXXXXXXX. As XXXXXXXX by XXXXXXX (1980), “XXX XXXXXX of XXXXXXX direct investment has been excelled XX the XXXXXX of publications specially on the determinants XX these investments.”XXXXXX every XXXXX XXX XXX both XXXXXXXXX XXX XXXXXXXXXX XXXXXXXXX, XXXXXXXXXXX XXXX XXXXXXXX </p> <p>XXXXX XXXX, X. M. (XXXX),XXXXXXXXXX development in mineral economies: the resource curse thesis, XXXXXX: Routledge; XXX Sachs, J. XXX A. M. Warner (XXXX). “XXXXXXX XXXXXXXX XXXXXXXXX and XXXXXXXX XXXXXX.” XXXX XXXXXXX Paper 5398. 21Such examples include XXXXXXXX, XXXXX, XXXXXXXXX, Malaysia, XXXXXXXXX, Mexico XXX Oman. 22Agarwal, X.X. (1980). “Determinants XX XXXXXXX XXXXXX investment: a XXXXXX,”XXXXXXXXXXXXXXXXXXXX XXXXXXX, XXX. XXX. </p> <p>15 </p> <p>XXXXXXXXX, economic, social, XXX XXXXXX variables in their search XXX “XXX XXXX important” XXXXXXXXXXXX XX XXX XXXXX. The XXXXXXXXXX XXXXX synthesizes XXX XXXXXXX XX XXXX XXXX literature XXX summarizes the XXXXX elements of attractiveness that XXXX foreign XXXXXXXXX to a XXXXXXX. </p> <p>XX.XXXXXX demand. XXX XXXXX of FDI XX positively XXXXXXXXXX by XXX XXXX of a XXXXXXX’s XXXXXX XXXXXX as XXXXXXXX XX XXX per XXXXXX. This XXXXXXXX the XXXXXX observation XXXX most XXX flows XX XXXXXXXX XXXX XXXXXXXXX and it is XXXXXXXXXXXX true XXXX XXXXXX-XXXXXXX type XX FDI. XXXX in developing XXXXXXXXX, where XXX inflows tend XX XX XXXX input-XXXXXXX, a country’s overall XXXXXXXXXXX level still has a strong XXXXXXX on how XXXX FDI it attracts. </p> <p>46.Growth XXXX. FDI flows to where fast economic growth has XXXX XXXXXXXX. X virtuous XXXXXX is XXXXXXXX XXXX: at same time that XXX XXXXXXXXXXX XXXXXXXXXXXXX to XXXXXXXX growth, faster XXXXXXXX XXXXXX XXXXXXXX more FDI because it XXXXXXXXX foreign investors’ confidence in XXX XXXXXXX, which in turn pushes XXX growth rate XXXX higher. In the least XXXXXXXXX countries, XXXXXXX have XXXXX XXXX XXX in fact XXXXXXX, XXX proceeds, some XXXXXXX XXXXXX or XX XXXXX XXX XXXXXXX of XXXXXX. </p> <p>XX.XXXXXXXXX stability. Quite understandably, XXXXXXXXXX of political coups, assassinations, XXXXX, or XXXXX conflicts may exert a dominant XXXXXXXX XXXXXXXXX on XXXXXXX XXXXXXXXX’ investment XXXXXXXXX. XXXXXX, frequent changes XX governments XXX the XXXXXXXXX XXXXXX XXXXXXX can reduce an investor’s XXXXXX to XXXX overnight. In XXX absence XX significant XXXXXXXX of nonrenewable XXXXXXX XXXXXXXXX (e.g. oil), XXXXXX would XXX foreign XXXXXXXXX XXXXXX serious political risks or frequent policy reversals. </p> <p>XX.XXXXXXXXXXXXX stability. A country’s overall macroeconomic XXXXXXXXXXX, such XX XXX inflation XXXX and XXXXXXXX XXXXXX account, is a XXXXXXXXXXXX significant XXXXXX in shaping the XXXXXXXX XXXXXX of XXXXXXX XXXXXXXXX when assessing investment XXXXXXXXX. XXXXXXX XXXXXXXXXXXXX instability makes it XXXXXXXXX for investors XX evaluate the true costs and returns of their investments, only in XXXX cases XXXXX FDI XXXXX to XXXXXX where there XX hyperinflation or XXXXXX imbalances in XXXXX XXXXXXXX and XXXXXXXX positions. </p> <p>49.XXXXXXXXXXXXXX. With XXXXXXX XX XXX, infrastructure encompasses XXXX physical (e.g. roads and XXXXX) XXX XXXXXX (e.g. XXXXXX and education) XXXXXXXX. It has been XXXXXXXXXX shown around XXX world that a well-developed infrastructure XXXXXXX and a well-trained XXXXX XXXXX are major XXXXXXXX XX XXXXXXXXXXXXXX to foreign investors. This is XXXXXXXXXX XXXX XXXXX XXXX quality XXX (e.g. long-XXXX transfer XX advanced technology) is concerned. </p> <p>XX.Regulatory environment. XX XX XXXXXXXXXXXX XXXXXXXXXX that the administrative XXX regulatory environment XX a country can XXXX a XXXXXXXXXXX influence on XXX XXXXX XX FDI XXXXX. While large XXX XXXXXXXX XXXXXXXXX XXX XX able to endure XXXXXXXXXX and costly XXXXXXXXXX, they XXX XXXXX XXXXX XX the XXXXX and growth of XXXXX and XXXXXX enterprises. XXXXXXXX, arbitrary, discriminatory, XXX non-transparent regulations often lead XX corruption, which has been shown to be a fatal XXXXXXXXX to XXX. </p> <p>16 </p> <p>51.Investment promotion. XXXX a country has XXXXXXXXXXX a reasonably XXXXXXXXX investment XXXXXXX, how much FDI it gets XXXXXXX XXXX on its marketing XXXXXXX to attract foreign XXXXXXXXXX. Granted, no amount of promotion can XXXXXXXXXX for a truly investment-friendly XXXXXXXXXXX, XXX XXXX XXXXX factors XXX similar – as it XXXX in economies having XXXXXXXX a certain level XX development – promotion XXXXXXX do make a difference. </p> <p>XX. XX XXXX context, XXXXXXX should XX XXXX XX XXX fiscal incentive XXXXXXX XXXX XXXX governments often feel obliged XX XXXXX in order XX attract FDI. XXXXX XXXX indeed be XXXXXXXX of XXXX “tax heavens” which XXX XXXXXX XXXXXXXXXX XXXX XXXXXX multinational XXXXXXXXX. Most XXXXXXXX XXXXXXX XXX XXXXXXX XX international XXXXXXXXX, XXXXXXX, XXXX repeatedly XXXXX XXXX these incentives are XXX nearly XX XXXXXXXXXXX in XXX XXXXXXXX XXXXXXXXX of XXXXXXX investors as it XX usually XXXXXXXX. XXXX XX, even though XXX investors would seek XXX XXXXXX XXX liabilities when it is possible – XXXX XXXX XXXX would prefer XXX XXXXXX XXXXX XXXX all other conditions XXX equal - the XXXXXXX factors XXXXXXXXX above XXX far more important in XXXXX XXXX XXXXXXXXXX than special fiscal incentives. XXXXXXX investment XXXXXXXXXX XXX needed XXX a XXXXXXX XX attract XXX and XXXX XXXXX XX XXXXXXXXXX to XXX XXXXXX largely on XXX XXXXXX of the prospective XXXXXXXXX’ activities, their XXXXXXXXXX for XXXXXXXXX abroad, XXXX whom XXX hosting country is competing for XXXXX XXXXXXXXX, XXX XX the country XXX the XXXXXX XXXXXXXX XX XXXXXXX XXX XXXXXXX XXXXXX XXX the XXXXXXXXXXXXXX capacity to manage XXX XXXXXX incentive XXXXXXX. Overall, XXXXXX companies XXXX XXXX XXXXXXXXXX to the XXXXXXXXXX and XXXXXXXXX XX a country’s tax system than XXXXXXXX tax XXXXXXX. </p> <p>XX. What XX XXX XXXXXX XXXX To XX? </p> <p>53. XXX previous XXXXXXXXXXX XXXXXXXXX XXX role XX FDI in economic development – while not a XXXXXXX, it XX a critical ingredient XX the long term sustainable XXXXXX. For developing countries, it presents the most effective XXX XX enhance XXXXXXXXXXXX XXX to develop an internationally XXXXXXXXXXX private sector; it XXXXXXX XXXXXXXXXX XXX income opportunities; XXX it XXXXXXXX an important XXXXXXX to raise XXXXXXXXXXXXX and XXXXXX standards. XXXX XXXXXXXXXX XXXXXXXXX XXXX reaped these benefits. XXX neither FDI XXX all its XXXXXXXX XXXX automatically. XXXXXXX investors are fallible XXXXXX whose XXXXX and XXXXXXXX objective for XXXXXXXXX anywhere is to maximize their global XXXXXXX, with or without benefits XX XXXX countries. XXXXXXXXXXX XXXX XXXXXX business principle, it is possible XX bring out the XXXX sides XX XXX and avoid XXX XXXXXXXX XXXXXXX. </p> <p>54. Moreover, XXXXXXX XXX XXXXXXXXXX potential XX FDI in economic development, it does XXX XXXXXXX XXXXXXX to XXX developmental XXXXXXXX. For example, XXXXX FDI helps XXXXXXX income levels, it cannot automatically XXXXXX existing XXXXXXXXXXXX XXX XXX XXXX XXXXXXXXXX XXXX in the short XXX XX XXXXXXX a premium on people XXXX higher XXXXXX. XXXXXX policies need XX be in place XX XXXXXXX the XXXXXX segments XX society. XXX XXXX of FDI in this process is, by virtue XX its XXXXXX on productivity and XXXXXX, to generate XXX </p> <p>17 </p> <p>resources XXXXXX to fund the XXXXXXXXXX-led XXXXXXXX that improve XXXXXX XXXXXX XXXX XXX XXXXXXX basic XXXXXX services. Moreover, XXX delivery XX social XXXXXXXX XX XXX poor – from insurance XXXXXXX to access to basic services XXXX as XXXXX XXX energy – XXX also benefit from reliance on foreign XXXXXXXXX. It XX thus XXXXXXXXXX XXX XXX national XXXXXXXXXXX XX create XXX pre-conditions XXX FDI to flow in and XXXX its XXXXXXX. </p> <p>55. XXX most XXXXXXXXXXX pre- XXXXXXXXXX XXX XXX XXX XXXXXXXXXX in XXX XXXXXXXX section. The XXXXXXXXXXX XXXX XXXX to XXXXXXX (i) XXXXX XXXXXXXXX and macroeconomic stability XXXX XXXXXX reasonable XXXXXXXXXXXXXX so that investors can XXXX XXXXXX XXXXXXXX XXXXXXXXX; (ii) a XXXXX-XXXXX legal XXX XXXXXXXXXX XXXXXXXXXXX XXXX facilitates doing business XXXXXX than XXXXXXXXX it; (XXX) an XXXXXXXX XXXXXXXX and XXXXXX infrastructure that XXXXXX the XXXXXX XXXXXXXXXXX XX XXX XXXXXX XXX XXXXXXXXXXXX of XXXXXXXXX; XXX (iv) XXXXXXXXXXX investment promotion efforts XXXX disseminate XXXXXXXXXXX about XXX investment XXXX and XXXXXXX XXXXXXXX XXX potential investors. </p> <p>XX. XXXXXX XXXXX XXXXX XXXXXXXXXX, XXX XXXXXXXXXXX XXXX also XXXX to XXXXXXX several specific issues in order XX XXXXXX XXX XXXXXXXXXXX of the benefits XX FDI. They include:23 </p> <p>57.An even XXX competitive XXXXXXX XXXXX.XXX benefits XX FDI tend to be XXXXXXXXX when XXXXXXX investors operate XX an XXXX XXX XXXXXXXXXXX playing XXXXX. To XXXX XXX, XXXXXXXXXXX need XX provide a XXXXXXXX environment where competition, free XXXXX, XXXXXXXX XXXXXX XXX XXXX exit XXXXXXXXX who gains and who XXXXX. XXXXXXX XXX domestic XXXXXXXXX XXXX XX be treated equally XX much as XXXXXXXX.XXXX amply XXXXXXXXXXXX in economic literature, exposure to effective XXXXXXXXXXX on an even XXXXXXX XXXXX is XXX most XXXXXXXXX incentive XXX XXXXXXX XXX domestic companies XX XXXXXXX XXXXXXXXXX XXX XXXXXXXXXX practices, while free entry XX the XXX XX XXXXXXXXXXXX effective linkages between foreign investors and XXXXXXXX XXXXXXXXX XXX distributors XXXX XXXX XXXXXXX best XXXXXXXX in the host XXXXXXX.25 </p> <p>XX.Domestic XXXXXXXX to exploit FDI XXXXXXXX.A liberal XXX competitive XXXXXXXXXX XXXXXXX creates XXX XXXXX for XXX to enter XXX raise the potential for XXXXXXXXXXXX growth in XXX XXXX XXXXXXX, but improvements XXXX XXXX XXXXX if XXX domestic XXXXXX are XXXXXXX of XXXXXXXXXX to XXX new incentives. XX XXXXXXXXX in the XXXXXXXX XXXXXXXX, XXX XXXX serious deterrent to XXXXX diffusion of XXXX XXXXXXXX XX a lack of indigenous XXXXXXXXXXXX to take XXXXXXXXX XX the opportunities. XXX key policy XXXXXXXX XXX thus to XXXXXXX XXX XXXXXXXXX and infrastructure so as XX XXXXXXXX XXX XXXXXXXX XXXXXXXXXX capacity XX XXX XXXXXX of XXX. </p> <p>59.XXXXXXXX XX environmental XXX social XXXXXXXXX.XX globalization gradually leads XX XXXXXX XXXXXXXXXXXXX and XXXXXX standards of FDI, XXXXXXXXXXX need XX XXXXXX their </p> <p>XXXXXX XXXXXXXXXX draws XXXX XXXXX et XX. (2001). 24It is XXXXXXXXXX that given the special features XX XXX as compared to XXXXXXXX XXXXXXXXXXX, XXXXXXXXXXX in treatment XXX XXX entirely XXXXXXXXX. But XXXX XXXX XX XX kept XX a minimum. 25The XXXXXXXX XXXXXXX of FDI XXX most XXXXX linked XX uncompetitive practices in the domestic XXXXXXX and XXXXXXXXX XXXXXXXXXXX XXXXXXX to XXXXXXX firms. XXX XXXX, S. and X. XXXXXXXX (1977),Foreign XXXXXXXXXX, transnationals XXX developing XXXXXXXXX, XXXXXXXX XXXXX; and Graham, X. H. (XXXX). “Foreign direct investment in the world economy.” IMF Working XXXXX XX/XX/59. </p> <p>18 </p> <p>own XXXXXXXX to fit XXXX the XXXXXXXX XXXXX norm. In XXXXXX where XXXXX XXXXXXX a wide gap between XXX world XXXXXXXXX and those XX a XXXX XXXXXXX, XXXXXXXXX XXXXXXX investors XXX XX forced XX stay XXXX out XX XXXXXXXXXXXX XXXXXXXX or they XXX XXXX XXX much XXXXXXXXXXX from XXXXXXXX XXXXX not subject to as stringent norms. To XX XXXX, tougher standards XXXX XXXXX, which XXX XXXXXX XXXX XXXXXXXX XXXXX XXX certain XXX-XXXX-seeking XXX. XXXXXXXXXXX XXXX to XXXXXX how XX position themselves XXX XXX long term benefits XX their XXXXXXXX development. </p> <p>19 </p> <p>Bibliography </p> <p>XXXXX J. “XXXXXXXXXXXXX XXXXXX and competitiveness in a XXXXXXXXXX XXXXXXX: conceptual issues and a review of XXX XXXXXXXXX evidence”, in XXXX Globalization XXX Environment: XXXXXXXXXXX Perspectives, XXXX. </p> <p>XXXXXXX, J.X. “XXXXXXXXXXXX of foreign XXXXXX XXXXXXXXXX: a survey,”Weltwirtschaftliches XXXXXXX, Vol. XXX, XXXX. </p> <p>Aitken, B. and A. E. XXXXXXXX. “Do domestic XXXXX XXXXXXX XXXX direct XXXXXXX XXXXXX investment? XXXXXXXX from XXXXXXXXX”,The XXXXXXXX Economic Review, Vol. 89, No. X, 1999. </p> <p>Auty, R. M.Sustaining development in XXXXXXX economies: XXX resource curse XXXXXX, XXXXXX, XXXXXXXXX, 1993. </p> <p>Barnes, X. and R. Kaplinsky. “XXXXXXXXXXXXX and XXX XXXXX XX XXXXX firms”. Automobile component section in South XXXXXX, 2000. </p> <p>XXXXX, X.X. “Notes on growth XXXXXXXXXX,” NBER Working Paper No. 6654, XXXX. 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