Much ado about nothing, or sirens of a brave new world? MNE activity from developing countries and its significance for development
Rajneesh Narula
#2010-021
This paper examines the evidence on developing country MNEs and outward
FDI activity. We do not find evidence of an across-the-board growth in
outward FDI from developing countries, either in magnitude, or
geographically. Such growth is a narrow phenomenon, limited to a small
group of home countries with relatively well-developed knowledge
infrastructure, as well as innovation and business systems. These ‘new’
MNEs have been spurred by greater competition through liberalisation,
and have sought to survive by upgrading of their firm-specific assets
and one means to do so has been by internationalisation. Broadly
speaking, much of the rapid expansion of DC MNE activity from countries
such as India is not sustainable. We also discuss the effect of outward
FDI on the knowledge base of the home countries of DC MNEs, as well as
the role of DC MNEs in promoting South-South capital and knowledge
flows. We argue that DC MNEs are not a superior option to conventional
MNEs, as there are few differences in their modus operandi. Besides,
MNE-assisted development still depends upon the capacity of the host
country to efficiently utilise the spillovers and linkages potentially
made available. Many of the DC host countries have endemic political
instability, poor transport links and infrastructure, little skilled
manpower and are distant from the most important markets. If developing
countries are to attract more sophisticated projects they must provide
stability, human capital, infrastructure and reliability.
Keywords: FDI, MNEs, developing countries, development, absorptive
capacity, knowledge flows, south-south, emerging markets.
JEL codes: F23, L52, O14, O19
UNU-MERIT Working Papers
ISSN 1871-9872