Global Players – Global Markets
International Institutions and Global Governance series
Edited by John-ren Chen
Chapter 8: Coordination Failures and the Role of Foreign Direct Investment in Least Developed Countries
: exploring the dynamics of a virtuous process for industrial upgrading Brian Portelli INTRODUCTION Attitudes towards foreign direct investment (FDI) in least developed counties (LDCs) have changed considerably over the last two decades, in the context of widespread adoption of economic liberalisation doctrine, whether taken up voluntarily or through World Bank-sanctioned structural adjustment programmes. These changing attitudes refer to the so called ‘New Economic Model’ (Reinhardt and Peres, 2000), characterised by the adoption of outward-looking economic policies, particularly in the emphasis of promoting economic growth through foreign investment and efforts for greater participation in international trade.1 FDI is seen as having a central, important role to play in national development strategies and is viewed as the engine with which to exploit and sustain the competitiveness of indigenous resources and capabilities (UNCTAD, 1999).2 The present policy stance vis-à-vis FDI represents in many ways a dramatic turnaround, particularly so in the case of those LDCs which until the 1980s practised the outright barring of FDI activity in domestic markets (Caves, 1982). The marked change in attitudes of LDCs towards FDI also emanates from the recognition of the accelerating pace of technical change and the emergence of integrated production networks of MNEs (Lall, 2000a). Indeed FDI can play an important role in national development strategies, particularly as regards the potential contribution to host country industrial and technological development. It is also becoming increasingly clear that the less developed a country is, the greater usually are the expectations placed on FDI to alleviate...
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