Edited by John R. McIntyre, Silvester Ivanaj and Vera Ivanaj
Chapter 4: Sustainable Development and Resource-based Foreign Direct Investment in Developing Economies: Models of Corporate Production Behavior
Kofi Afriyie INTRODUCTION 1. This chapter employs the evolutionary-stage approach to explain the dearth of or outright lack of positive spillovers on resource-rich host economies, as multinational enterprises (MNEs) expand in the latter stages of their globalization expansion. The major thesis of the chapter is that the stage at which an MNE exists in its evolutionary development as it globalizes its activities around the world determines whether a host country will benefit from the firm’s production activities. Thus we demonstrate that a host country stands to gain more economic benefits at stages of production when the MNEs is less integrated vertically. Thus, in the later stages of production when the firm’s production is increasingly dispersed across many national economies and markets, a host country would find it more difficult to capture value-added in production within the host economy than in stages of horizontal or, at least, less vertical investment. We argue that a major consequence of vertical integration production is that there tends to be less opportunity to create positive spillovers in a national economy, a situation that can lead to, depending on the internal political dynamics of a host country, adverse relationships between host stakeholders and the MNE. Such adverse relationships, in turn, have the effect of encouraging the MNE to further undertake even more vertical investing to reduce production risk in a host country. Ultimately, by not creating value-added production to be captured by the host economy, the firm helps in creating an environment of political risk for...
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