Edited by Suiwah Leung, Ben Bingham and Matt Davies
Chapter 5: How Can Regional Public Expenditure Stimulate FDI in the Mekong?
Pritha Mitra INTRODUCTION 1 Cross-country experiences show that foreign direct investment (FDI) accelerates growth in developing countries through contribution of capital, technical know-how, organizational, managerial and marketing practices, and global production networks (Lall, 2000).1 Properly targeted public expenditures can boost the attractiveness of traditional factors that draw in FDI such as natural or human resources, markets, efficiency gains, low production costs and strategic assets.2 FDI-attracting public initiatives are more successful under regionally coordinated public programs. Public expenditures creating an attractive environment for FDI span a variety of areas from infrastructure and human capital to public subsidies and low administrative barriers. Coordination and cooperation across countries can help reduce costs in each of these key areas. Competition for FDI across countries in a region can become destructive resulting in detrimental FDI gains for any individual country. For example, competition across neighboring countries in FDI-targeted tax incentives can result in fiscal revenue losses for all countries. In contrast, regional coordination of public expenditure initiatives can eliminate destructive competition. How can the Mekong attract FDI through regionally coordinated public expenditures?3 Having already taken the first steps towards regionally coordinated public expenditure to attract investment, the Mekong can induce significant FDI by pushing further coordination in areas of public subsidies, infrastructure and human capital development and institutional reform. The Greater Mekong Subregion Strategic Framework (GMS-SF), a program of subregional economic cooperation designed to enhance economic linkages across borders, has already made significant progress in coordinating infrastructure across the region.4 For example, GMS-built...
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