Good practices in governance of foreign direct investment in developing countries

Answer to the question whether FDI has a positive impact on development is ambiguous. International organizations promote investment in developing countries, while some human rights NGO provide evidences that FDI has a negative effect on the host country economy. This paper suggests that FDI can be beneficial for developing countries if their governments use the right strategies. Successful FDI policies are build on a stable macroeconomic and political background. Transparency and corruption reducing measures are necessary to both attract and benefit from FDI. In order to manage operations of MNCs, an investment agency should be established. Further, the paper tests the most common policies used by developing countries to manage FDI. It compares costs and benefits of tax incentives, joint venture and domestic content requirement and EPZs, and finds that domestic firms should be treated in the same way as foreign MNCs. The paper also suggests that tax incentive as well as join venture and local content requirements are not beneficial for the host country.