Sectoral Trends of FDI in Developing Countries: Background
Sectoral Trends of FDI in Developing Countries: Background
production and trade in both developed and developing countries. This is reflected in the
changes in the extent of information and technology in the workplace, firm’s production
and organisational strategies, trade and FDI liberalisation policies, and new rules of
international trade and investment. Given these developments, the sectoral trends
(primary, manufacturing and services) in FDI have changed rapidly over the past two
decades.
The most striking feature of FDI over the past 15 years is the sharp decline in the
share of the primary goods sector. Indeed, the share of the primary goods sector has
more than halved between 1988 and 1997 in developing countries (Table II.4). Another
striking trend is the growing share of the services sector5. This was especially prominent
during the M&A boom between 1987 and 2000. Indeed, the share of the services sector
M&A in the year 2000 was more than twice the sum of the primary and manufacturing
sectors (World Bank, 2003). Table II.4 shows that the drop in the share of the primary
goods sector is almost equal to the increase in the services sector. In terms of the level
of FDI, however, the manufacturing sector remains the most important sector in
developing countries.
The increasing role of the services sector is notably the case in China, which
receives the highest level of FDI in developing countries6. Between 1984 and 1993, the
service sector has grown from 32.2 to an astonishing 47.3 per cent share of total FDI.
This was at the expense of a diminishing primary goods sector which went down from
40.9 to 3.1 per cent during the same period. Following the general trends in developing
countries, the share of the manufacturing sector in FDI for China remains dominant at
51.2 per cent in 1993.
Regional disparities in the sectoral composition are evident in Table II.4. The
African region appears to go against the overall developing country trends with the share
of primary goods remaining high and constant and the share of services diminishing.
This is due to the fact that a large number of MNEs operating in Africa are still attracted
by the abundance of natural resources rather than the market or host-country investment
climate. The Latin American and the Caribbean regions show a large drop in the share of
the manufacturing sector with a corresponding increase in the share of the services
sector. The Asian region exhibits a large and stable share of the manufacturing sector.
Technologically advanced FDI has become more and more dominant in recent
years. This should be reflected by resource-based manufacturing being replaced by
high-technology manufacturing firms. There is also evidence that a number of
manufacturing firms have created services-related enterprises due to the necessity of
outsourcing part of the enterprise operation (UNCTAD, 1999). While Table II.4 is
consistent with this observation, the trends in the technology content of production are
not so evident. In order to clarify the distinction in different levels of technology that are
imbedded in goods produced by the MNEs, Figure II.2 presents the annual growth rate of
world exports by technological intensity. Given that a substantial fraction of
manufacturing goods generated by MNEs in developing countries is exported, Figure II.2
should provide an approximation of the trends in the technological level of the goods
produced through FDI. Figure II.2 clearly indicates that the higher the technological
content of the exported goods, the higher the growth rate. Products with the lowest
extent of technology such as primary goods and resource-based manufacturing exhibit
the lowest growth rate in world exports.
Sectoral Trends of FDI in Developing Countries Background - To learn more about this author, visit OECD Development Centre's Website.
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The recent waves of globalisation have substantially transformed the modes of
production and trade in both developed and developing countries. This is reflected in the
changes in the extent of information and technology in the workplace, firm’s production
and organisational strategies, trade and FDI liberalisation policies, and new rules of
international trade and investment. Given these developments, the sectoral trends
(primary, manufacturing and services) in FDI have changed rapidly over the past two
decades.
The most striking feature of FDI over the past 15 years is the sharp decline in the
share of the primary goods sector. Indeed, the share of the primary goods sector has
more than halved between 1988 and 1997 in developing countries (Table II.4). Another
striking trend is the growing share of the services sector5. This was especially prominent
during the M&A boom between 1987 and 2000. Indeed, the share of the services sector
M&A in the year 2000 was more than twice the sum of the primary and manufacturing
sectors (World Bank, 2003). Table II.4 shows that the drop in the share of the primary
goods sector is almost equal to the increase in the services sector. In terms of the level
of FDI, however, the manufacturing sector remains the most important sector in
developing countries.
The increasing role of the services sector is notably the case in China, which
receives the highest level of FDI in developing countries6. Between 1984 and 1993, the
service sector has grown from 32.2 to an astonishing 47.3 per cent share of total FDI.
This was at the expense of a diminishing primary goods sector which went down from
40.9 to 3.1 per cent during the same period. Following the general trends in developing
countries, the share of the manufacturing sector in FDI for China remains dominant at
51.2 per cent in 1993.
Regional disparities in the sectoral composition are evident in Table II.4. The
African region appears to go against the overall developing country trends with the share
of primary goods remaining high and constant and the share of services diminishing.
This is due to the fact that a large number of MNEs operating in Africa are still attracted
by the abundance of natural resources rather than the market or host-country investment
climate. The Latin American and the Caribbean regions show a large drop in the share of
the manufacturing sector with a corresponding increase in the share of the services
sector. The Asian region exhibits a large and stable share of the manufacturing sector.
Technologically advanced FDI has become more and more dominant in recent
years. This should be reflected by resource-based manufacturing being replaced by
high-technology manufacturing firms. There is also evidence that a number of
manufacturing firms have created services-related enterprises due to the necessity of
outsourcing part of the enterprise operation (UNCTAD, 1999). While Table II.4 is
consistent with this observation, the trends in the technology content of production are
not so evident. In order to clarify the distinction in different levels of technology that are
imbedded in goods produced by the MNEs, Figure II.2 presents the annual growth rate of
world exports by technological intensity. Given that a substantial fraction of
manufacturing goods generated by MNEs in developing countries is exported, Figure II.2
should provide an approximation of the trends in the technological level of the goods
produced through FDI. Figure II.2 clearly indicates that the higher the technological
content of the exported goods, the higher the growth rate. Products with the lowest
extent of technology such as primary goods and resource-based manufacturing exhibit
the lowest growth rate in world exports.
Sectoral Trends of FDI in Developing Countries Background - To learn more about this author, visit OECD Development Centre's Website.
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