Foreign direct investment as a driver of industrial development: why is there so little evidence?
Rajneesh Narula
#2013-034
This paper examines the role of FDI in promoting industrial development,
and raises a rather important question: Why, if FDI is such an important
avenue to promote development, is their little evidence on concomitant
industrial development in most developing countries? This chapter takes
a look at the evidence on FDI and development and explores some of the
causes for this ambiguity. The complexities of global value chains and
networks have begun to trivialize the simplistic principle that
increased MNE activity automatically implies a proportional increase in
spillovers and linkages. Policies towards MNEs need to be closely linked
and integrated with industrial policy. MNE activity needs to be
evaluated by considering the kinds of externalities that are generated;
whether and how domestic actors can internalize them, and building up
absorptive capacities to achieve this.
Keywords: MNEs, absorptive capabilities, motives, IDP, services,
developing countries
JEL: F23, O14, O19