Threat or Opportunity?
Edited by Karl P. Sauvant
Chapter 13: What Policies Should Developing Country Governments Adopt Toward Outward FDI? Lessons from the Experience of Developed Countries
Theodore H. Moran INTRODUCTION What policies should developing country governments adopt toward outward foreign direct investment (FDI)? Should developing countries actively promote outward FDI, adopting policies that explicitly favor home-country ﬁrms moving abroad? Or should developing countries restrain outward FDI, by discouraging home-country ﬁrms from moving abroad and/or granting preferences to ﬁrms that remain at home? Or, should developing countries design policies that are neutral to inward and outward investment – letting international market forces determine ﬁrm behavior – and intervene only to compensate for market failures or to generate externalities that can be captured at home? Developing country strategists will choose among these three approaches on the basis of what impact they judge outward FDI to have on the economic and political objectives of their home countries. This will require empirical analysis of whether outward FDI strengthens or weakens the home country economy, and expands or diminishes the political capacities of the home country in the international arena. To be sure, developing country policies toward outward FDI are related to much broader questions of enormous importance. For example, what are the pros and cons of overall capital account liberalization? How should developing country strategies for internal research and development (R&D), or external acquisition of knowledge (including brain-drain ‘reversal’) be designed? How do policies toward internal or external investment interact with national plans for education and training? To keep the analysis manageable, this chapter deliberately narrows the focus to two extensive literatures examining outward investment from the developed world that developing...
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