Strategies to Attract Quality FDI Successfully

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A new KCG Policy Paper proposes evidence-based strategies to attract not only FDI per se but more so-called Quality FDI. Multinational enterprises (MNEs) with Quality FDI in developing countries do not just aim for 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 contrast, MNEs with Quality FDI are more capable of bringing in not only financial capital but also their know-how and technologies to the host countries. Quality FDI encourages and supports further development of local firms and labour force. It helps integrate local firms into global supply chains, thus expanding their market access. Last but not least, Quality FDI may also support local stakeholders to operate in a socially and environmentally responsible way.

To benefit from Quality FDI, developing countries cannot just wait for MNEs’ decisions in favour of their countries. They need effective strategies to help them not only enhance their attractiveness as host countries for Quality FDI but also further develop the capabilities of local firms, labour and other stakeholders and thus increase their absorptive capabilities to best link MNEs with local stakeholders and the local economy.

A collection of evidence-based strategies for developing countries to attract Quality FDI is provided in a new KCG Policy Paper, co-authored by Theodore H. Moran, Holger Görg, Adnan Seric and Christiane Krieger-Boden. Thirteen suggestions are provided there, including encouraging market liberalization, setting up an effective and capable Investment Promotion Agency, and strengthening backward linkages from FDI to the indigenous economy etc. They provide notes of caution as well to remind developing countries of potential, easily-made, errors while promoting Quality FDI. Last but not least, the authors make suggestions of the roles that external donors and developed countries can play in this regard.

The abovementioned KCG Policy Paper that is a result of IfW/KCG – UNIDO cooperation can be found here.

The cooperation also led to “The Vienna Investment Conference: Quality FDI, Development and Growth” that took place in September 2016.