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The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries

image of The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries

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Introduction

Since the mid-1980s, most developing countries have become much more open to FDI, with a view to benefiting from the development contributions which FDI — particularly high-quality FDI — can generate for host countries. Since the early 1990s, transition economies have joined in this trend. Both groups of countries, often hostile or at best distrustful vis-à-vis transnational corporations (TNCs) in the decades that followed the Second World War, began to perceive TNCs no longer as part of the problem but increasingly as part of the solution, bringing not only much needed capital to stimulate growth and development, but also technology, skills and access to foreign markets and creating employment. Consequently, previous restrictive and controlling policies and institutions were replaced by new ones aimed at attracting FDI. Thus, many developing countries and countries in transition have reduced — to various degrees — bans and restrictions on FDI entry, improved the standards of treatment and protection of foreign investors and eased or eliminated restrictions on their operations. Finding themselves in increasing competition with other countries for attracting FDI, they often also implemented incentive schemes for TNCs. Efforts to promote FDI also included the establishment of investment promotion agencies (IPAs) and export processing zones (EPZs). The process of opening up to FDI and establishing enabling frameworks for FDI vastly accelerated during the 1990s and continues until today, although more recently there have also been signs of more restrictive FDI policies in several countries.

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