The Political Economy of Foreign Direct Investment: A Framework for Analyzing Investment Laws and Regulations in Developing Countries

By Kofele-Kale, Ndiva | Law and Policy in International Business, Spring 1992 | Go to article overview

The Political Economy of Foreign Direct Investment: A Framework for Analyzing Investment Laws and Regulations in Developing Countries


Kofele-Kale, Ndiva, Law and Policy in International Business


Introduction

The Political Economy Paradigm

The governments of most developing countries continue to express a desire to stimulate and guide the socioeconomic development of their nations. To achieve this goal of state promoted and directed development, governments have intervened in their economies either directly, by controlling public enterprises,(1) or indirectly, by regulating the private sector through the legal system. Believing that private investments will contribute to the desired expansion of national output, these governments have resorted to a variety of schemes to induce private-sector firms, both foreign and domestic, to become more involved in the economy.(2) The role of private investment in the economic growth and development of the host countries and the impact of investment regimes on capital in-flows are issues that remain unresolved in the literature on private direct investments in Africa.(3)

Although a significant amount of empirical work has been done on the link between foreign direct investment (FDI)(4) and economic growth and development,(5) comparatively little attention has been paid to the effect that investment laws and regulations have on the amount of private capital actually invested.(6)

Studies of the legal aspects of doing business in developing countries have primarily focused on the details of the legal regimes governing foreign direct investment.(7) This approach has increased our understanding of the legal and regulatory framework within which private investors operate, yet it has failed to illustrate whether - and if so, how - the legal regime for foreign private investments has increased the capital levels in the host-country's economy or has promoted other significant governmental objectives for the economy.

Current legal writing on the regulatory environment for FDI in developing countries suffers from other deficiencies as well. In the first place, the studies on the legal aspects of doing business tend to be country-specific, and their general utility is thus somewhat limited.(8) Second, they offer little or no help toward developing a broad-gauged theory of FDI.(9) Given their emphasis on legal rules and regulations, rather than the social substructure underpinning the rules, these studies make no attempt to explore the interplay between such rules and other extraneous factors that also influence the flow of FDI. Finally, the legal environment of FDI traditionally has been studied and analyzed without consideration of the broader political economy context, ignoring the latter's influence on the former. Realistically, however, the law is inextricably interwoven with economics.(10) Therefore, the coexistence of law and the economy must be defined and described, rather than ignored because it lies outside the province of routine legal analysis.

The flaws in FDI scholarship need not detract from the important fact that policymakers in developing countries are acutely aware of the need for substantial capital formation if they are to develop into modern, technically advanced industrial societies.(11) The availability of significant amounts of capital played a prominent role in the early stages of industrialization in Europe (especially in England); the United States and Canada; the primitive "socialist" development process (for example, in the former Soviet Union); and, through the Marshall Plan, in the reconstruction of a war-ravaged Europe and Japan(12) in the late 1940s. Clearly, capital accumulation also stands to play an equally significant role in the industrialization of Africa.(13) In Africa, as elsewhere, in addition to domestic capital accumulation, development would greatly benefit from both private and public external capital inflows.(14)

Recognizing the potential benefits of FDI,(15) developing countries have enacted various kinds of investment legislation in the last two decades. The newer investment laws, together with related development legislation and assorted policy statements, have generally had as a basic objective the improvement of the environment for FDI. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Political Economy of Foreign Direct Investment: A Framework for Analyzing Investment Laws and Regulations in Developing Countries
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.