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FDI, Human Capital and Education in Developing Countries: Defining a Research Methodology

FDI, Human Capital and Education in Developing Countries: Defining a Research Methodology. Ki Fukasaku Paris, 1 4 December 2001. What type of FDI?. Natural resource extraction Manufacturing Services (telecom, power, transport, etc) Green-field M&As Privatisation.

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FDI, Human Capital and Education in Developing Countries: Defining a Research Methodology

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  1. FDI, Human Capital and Education in Developing Countries: Defining a Research Methodology Ki Fukasaku Paris, 14 December 2001

  2. What type of FDI? • Natural resource extraction • Manufacturing • Services (telecom, power, transport, etc) • Green-field • M&As • Privatisation

  3. Factors affecting FDI inflows • Fundamentals • Local thresholds • skills, technological capability, capital markets etc. • Host-government policies • incentive-based measures, rules-based measures (e.g. RTAs) • general vs. sector-specific policies

  4. Share of Manufacturing in Total FDI Stock- the United States, 1986 and 2000

  5. Net FDI Source and Recipient Countries($Billion, three year average 1998-2000)

  6. Net FDI Source and Recipient Countries($Billion, three year average 1991-1993)

  7. Benefits of FDI for Host Countries • FDI brings financial resources for domestic capital formation. • FDI increases production, employment and trade, quantitatively and qualitatively. • FDI transfers technologies, hard and soft.

  8. Technological Spillovers • Intra-firm (from parents to foreign affiliates) • Intra-industry (from FAs to local firms in the same industry) • Inter-industry (vertical linkages) • Labour turnover (“training ground”)

  9. FDI and technology transfer (1) • Intra-firm technology transfer: the host-country conditions matter (e.g. income level, past experience on industrialisation - Urata-Kawai 2000) • Efficiency gains from technological spillovers to local firms would not occur automatically. • Competition matters in local markets (Okamoto, 1999)

  10. FDI and technology transfer (2) • Blomström-Persson (1983, Mexico 1970) • Haddad-Harrison (1993, Morocco 1985-89) • Blomström-Sjöholm (1998, Indonesia 1991) • Kokko et al. (1996/2001, Uruguay 1988) • Aitken-Harrison (1999, Venezuela 1976-89) • Djankov-Hoekman(1999, Czech, 1992-96) • Haskel et al. (2001, UK 1973-92)

  11. FDI and technology transfer (3) • Both relative and absolute technological capabilities - Perez (1998, Italy 1989-91) Foreign presence affects positively the productivity growth of domestic firms in specialist and scale-intensive sectors (e.g. chemical, machinery, metal, automobile), but not in science-based sectors (e.g. pharmaceutical, IT/electronic).

  12. Host-government policies (1) • The importance of host-government policies for attracting FDI and reaping full benefits associated with FDI is clear. • Motives of foreign investors and host-country “fundamentals’ • Costs of investment incentives

  13. Host-government policies (2) • A comparative survey of FDI regimes in Asia and Latin America • Legal and policy framework for FDI appears to be more open in Latin America than in Asia. • Wide differences across countries in Asia in terms of control at the entry phase and negative lists as well as the approach to IPRs

  14. Main conclusions (1) • Host-government policies matter. • More discussion is needed as to how policies work (or do not work). • Traditional incentive-based measures are costly for developing countries facing severe resource constraints.

  15. Main conclusions (2) • The establishment of a multilateral framework of rules on FDI helps increase the collective welfare of host countries (prisoners’ dilemma). • A regional approach to taking more constructive, rules-based policies to FDI: EU, NAFTA, MERCOSUR, FTAA, ASEAN Investment Area, APEC.

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