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Growth and the Quality of Foreign Direct Investment

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The Industrial Policy Revolution I

Part of the book series: International Economic Association Series ((IEA))

Abstract

Policymakers and academics often maintain that foreign direct investment (FDI) can help in the development efforts of host countries. In addition to supplying capital, FDI can be a source of valuable technology and know-how and foster linkages with local firms that can help to jumpstart an economy.1 While academics tend to treat FDI as a homogenous capital flow, policy makers, on the other hand, seem to believe that some FDI projects are better than others. National policies toward foreign direct investment (FDI) seek to attract some types of FDI and regulate other types in a pattern which seems to reflect a belief among policymakers that FDI projects differ greatly in terms of the national benefits to be derived from them. UNCTAD’ World Investment Report 2006 for instance describes “quality FDI” as “the kind that would significantly increase employment, enhance skills and boost the competitiveness of local enterprises.” Policymakers from Dublin to Beijing have implemented complex FDI regimes with a view to influencing the nature of the FDI projects attracted to their shores. Sean Dorgan, Chief Executive of Ireland’s Industrial Development Agency, for example, claims that “the value of inward investment must now be judged on its nature and quality rather than in quantitative measures or job numbers alone.” Chinese officials have openly stated that the new challenge for the country is to attract more “high quality foreign direct investment.”3

We thank Garrick Blalock, Gordon Hanson, Ann Harrison, Lakshmi Iyer, Beata Javorcik, Ethan Kapstein, John van Reenen, Alessandra Tucci, Lou Wells, and Eric Werker for comments and suggestions.

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Author information

Authors and Affiliations

  1. Harvard Business School, USA

    Laura Alfaro (Warren Alpert Professor of Business Administration)

  2. London School of Economics, UK

    Andrew Charlton

Authors
  1. Laura Alfaro
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  2. Andrew Charlton
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Editor information

Editors and Affiliations

  1. Columbia University, USA

    Joseph E. Stiglitz (University Professor) (University Professor)

  2. Honorary Dean, National School of Development, Peking University, China

    Justin Yifu Lin

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© 2013 International Economic Association

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Alfaro, L., Charlton, A. (2013). Growth and the Quality of Foreign Direct Investment. In: Stiglitz, J.E., Lin, J.Y. (eds) The Industrial Policy Revolution I. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137335173_12

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