Foreign capital and structural multipolarity: why development does not happen

Rajneesh Narula, University of Reading

My starting point is a simple one: I am concerned that FDI, or as some prefer to refer to it, foreign capital, is given too much credit as a universal remedy to the development ills of nations. The evidence – despite billions of dollars of FDI – suggests economies are resilient in their inefficiencies. There is plenty of FDI, but limited evidence of significant development and structural change that countries expect MNEs to push them towards. My thesis is that the problems of development and the potential role of FDI in helping to alleviate them are shaped by stark intra-country differences. Different types of economic activity have different sets of development challenges, and therefore call for different policy initiatives, some of which neither require nor benefit from FDI.
I feel that the fault is in seeing countries as monolithic units, and further that the Chenery-type approach to economic structure and linear structural change is no longer very useful: few LDCs in a WTO world industrialise, and part of the enduring problem is the rural/urban divide in infrastructure and human capital, as well as the formality/informality divide that overlaps with (but does not perfectly overlap) with the rural/urban divide. Putting aside sociological issues a la Polanyi for the time being, I am proposing that it is possible to better understand development by focusing on (a) employment (quality and quantity) as the primary development indicator; (b) structural change as the movement (or inability) of resources to shift from inefficient sectors to more efficient ones.
I am proposing an ‘updated Lewis model’ which invokes the spirit of multiple economies cohabitating within most countries’ boundaries in some isolation from each other. It is this multipolarity, how resources shift (or do not), to what degree these differences stubbornly persist between these poles, and how might these differences be attenuated that matters most in the spirit of the Lewis model.
This will be an exploratory and conceptual discussion – I am presenting my nascent ideas, looking for useful feedback as to how to deal with boundary problems associated with the overlapping concepts used in the literature relating to subsistence/informality, formality/informality, traditional/modern, rural/urban, knowledge-intensive/resource-intensive.

About the speaker

Venue: Conference room (room 0.16 & 0.17)

Date: 25 October 2016

Time: 12:00 - 13:00  CEST