of projects. It should be noted that regional authorities may be no more likely to make accurate social cost/benefits analyses than private firms unless means are provided to insure that they identify their local interests with the national interest.
It may not be possible, and not desirable, to attempt social cost/benefit calculations for all foreign investments. The ability of most governments to carry out such calculations is, at best, limited. This does not mean that social cost/benefit accounting should never be attempted. When the investments are "large" and "critical" for the progress of other sectors, it may well be important for the host country and the investing firm to collaborate in such a calculation. In other cases, a general supervisory consideration of foreign investments may be all that is feasible and all that should be attempted.
Government policy makers and private investors can make two different types of mistakes: with respect to private interests and with respect to the social interest. It is the responsibility of the firm to avoid the former mistake and the responsibility of the government authorities to avoid the latter. For foreign investment to flourish, the exercise of both types of responsibilities must be coherent. Both types of tasks are complicated enormously when an economy is in transition due to rapid growth and structural change. The theories of direct investment suggest only general guidelines as to how to avoid social mistakes and, therefore, must be adapted to local conditions and supplemented by other theories.