Growth and the Quality of Foreign Direct Investment

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