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World Investment Report 1995

Transnational Corporations and Competitiveness

image of World Investment Report 1995

This fifth edition of the World Investment Report (WIR) documents the continuing growth of foreign direct investment (FDI) in developing countries. It analyzes the impact of FDI on the competitiveness of both developed and developing countries. The Report also discusses the policy implications for the enabling environment to promote inward as well as outward FDI and the key issues to be taken into account in multilateral negotiations. For the first time, WIR indexes transnationality that takes into account the respective shares of foreign assets, foreign sales and foreign employment of TNCs.

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Policies on inward foreign direct investment

Many countries turn to foreign direct investment (FDI) simply because local savings are inadequate to support increased investment. Governments also expect FDI to provide skills, technology, organizational and managerial practices and access to markets -- in short, they are interested in the package of tangible and intangible assets embodied in FDI. The less developed a country is, the more severe are the domestic resource and capability constraints, and usually the greater are the expectations from FDI to alleviate them. But foreign investors are not attracted to locations with few advantages: they prefer to invest in expanding economies with built-up infrastructure and a thriving local business sector. Inevitably, the investor response falls short of expectations, even when governments appear to adopt all the right policies. Can governments do more? Yes, and perhaps also less (e.g., when excessive financial or fiscal incentives are offered). But before considering what additional efforts governments might make, it is worth underlining that FDI is not a panacea to break out from the vicious circle of underdevelopment. Only when development is positively under way do investment opportunities really emerge; FDI can then be a catalyst to support the development process.

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