Direct Foreign Investment: Costs and Benefits

By Richard D. Robinson | Go to book overview

concerning their implementation and actual consequences are not yet well understood, there is evident need for reform. Unfortunately, the lack of more precise knowledge about the consequences of foreign investment legislation, and about the ways regulatory agencies actually end up implementing the policies, limits the possibilities of discussing alternative regulatory frameworks that would serve national interests more effectively. New efforts to improve the ways host countries deal with foreign firms will have to be based on more realistic assumptions about the nature, possibilities, and constraints of the actors--the firms and the government agencies. Also, governments will have to be more realistic about what to expect from firms, and to develop a better understanding of the "costs" associated with the presence of foreign firms in their respective national economies.

A recognition that even the most technically sound and effectively implemented policies relating to foreign investment and technology transfer will not eliminate completely some of its "costs" is perhaps the first step toward a more realistic and effective policy. It can also be a step toward a more stable treatment of foreign investment and technology. After all, as the sociologist Max Weber noted many years ago ( 1930), the most important institutional requisite for private investment is a legal system that offers security and predictability.


NOTES
1.
Several syntheses of the arguments and counterarguments utilized by the contrasting views on the effects of FDI and MNCs (multinational corporations) may be cited. Following a pioneering effort by Lall ( 1974), the works of Gilpin ( 1975), Moran ( 1974), Foster-Carter ( 1976), and Kobrin ( 1977) constituted interesting attempts at clarifying the main contending issues and arguments. The most comprehensive and systematic effort was that of Biersteker ( 1981). Naim ( 1978, 1980) provides a discussion of the policy consequences and analytical prerequisites for successful implementation that are implicit in the different views concerning the effects of FDI and MNCs on host countries.
2.
Bitar ( 1984). White ( 1982) offers a discussion of the evolution of the legal framework toward foreign investment in Latin America. Correa ( 1984) presents a detailed comparative description of foreign investment regulation in Latin America and the Caribbean while Cheroll and Zalduendo ( 1984) do the same for Central America and the Caribbean.
3.
For a descriptive analysis of these different legal instruments, see Villalba ( 1981).
4.
For convenience we will in general also include policies regulating the acquisition and payments for foreign technology as part of foreign investment policies. Also, the terms MNC and foreign firm are used interchangeably even if the first is only one specific type of foreign firm.
5.
Personal interview.

-61-

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