Holger Görg: G20 May Support Developing Countries to Set up Functioning Investment Promotion Agencies

In a new “Süddeutsche” article, Holger Görg suggests that G20 may help developing countries set up functioning investment promotion agencies, in order to attract not just FDI but Quality FDI to foster economic development in these countries. Empirical studies show clearly that being integrated into global supply chains as parts of multinational enterprises (MNEs) or their suppliers is advantageous for developing countries. Local firms involved have a higher level of productivity and are more capable of paying higher wages compared to other local firms without global engagement. It is, however, important to note that such positive findings do not mean that all firms can really benefit from their globalization engagement.  Instead, some local firms can benefit and grow, thus providing higher wages and better working conditions to their employees, while others cannot. One key factor here is the investment motive of MNEs and their local arrangement. More concretely, it depends on whether MNEs indeed bring Quality FDI into developing countries that encourages and supports further development of local firms and labour force or they invest locally just in order to pursue one-sided exploitation of resources such as raw materials and cheap labour in the host countries and let the local development interests be fully ignored.

In order to attract Quality FDI, several policy proposals are provided in the KCG Policy Paper No. 2. One of the priority policies is to set up functioning investment promotion agencies. Since developing countries may lack experience and resources, including human capital, that are required for setting up such agencies, G20 is expected to have a key role to play in this regard. It can help developing countries acquire relevant resource, knowledge and skills to set up and operate these investment promotion agencies efficiently to attract more Quality FDI to support local long-term sustainable economic and societal development.

The abovementioned Süddeutsche article (in German) can be found here: Görg (2017), Weder Engel noch Ausbeuter, Forum Süddeutsche.de Wirtschaft.