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FDI and Development: Policy and research issues in the emerging context

This paper, by Sanjaya Lall of the University of Oxford, provides a general review of the emerging policy and research issues related to foreign direct investment (FDI) and development in the current context of rapid technological change and policy liberalisation. It deals with the benefits and costs of FDI to development and the market failures that affect their impact on developing countries. It focuses on the impact of FDI on local enterprise development, particularly technological development, static versus dynamic benefits and bargaining with transnational corporations (TNCs).

The paper notes that FDI and TNCs are one way for developing countries to obtain access to technologies, skills and other benefits, but this does not mean that simply 'opening up' to FDI is the best way of obtaining them. Acquiring countries' governments face many trade-offs and there is no 'ideal' policy on FDI that applies to all countries at all times. The author argue that the extent to which TNCs upgrade their technology and skill transfer and raise local capabilities and linkages depends on the interaction of four factors: the trade and competition regime of acquiring countries; their government policies on TNC operations; the corporate strategy and resources of the TNC; and development and responsiveness of local factor markets and institutions.