Feedback Form
Home Features Mastermind Forums About Advertise Blog Network Contact Be An Author

Trends in FDI in Developing Countries: Background

Trends in FDI in Developing Countries: Background

During the past two decades, a number of developing countries witnessed a
growing importance of FDI as the primary source of financial capital flows into their
economy. FDI brings not only increased access to foreign exchange, trade and
employment, but also new products, information and technology. It is no coincidence that
this rapid growth of FDI was accompanied by an increase in the level of human capital.
The latter was achieved by strong government commitments to expand formal education
and vocational training along with improved enterprise efforts to improve training
opportunities for workers. This section looks at recent trends in both FDI and HRD in
order to highlight the magnitude of this issue as well as to explain some of the key issues
raised in this paper.
II.1. Trends in FDI in Developing Countries
Developing countries receive financial flows from numerous private and public
sources. Private flows come from FDI and capital markets, the latter being bank lending,
bond financing and equity flows. Most official flows come from official development
assistance (ODA). Figure II.1 presents trends of different sources of financial flows to
developing countries during the past decade. It indicates that FDI used to be relatively
less important as compared to official flows, before the early nineties. After 1993,
however, both the share and the level of FDI grew substantially and it is now the
dominant source of financial flows into developing countries.

This large expansion in FDI took place in two different forms: mergers and
acquisition (M&A) and Greenfield investment. The former include equity acquisition of
private companies and privatisation of public enterprises, the latter being quite popular in
developing countries. Greenfield investments involve new capital investments by MNEs
via establishing overseas subsidiaries (or affiliates) that serve as part of the global
production/distribution network. Due to the difference in the mode of investment, M&A
and Greenfield investment are expected to exhibit different impacts on host developing
countries. Greenfield investment is more likely to have strong impact, at least in terms of
HRD, since the former is a change in ownership structure while the latter is in essence a
new investment which requires large MNE involvement to the local environment.
Table II.1 presents FDI by forms of investment. It shows that industrial countries
have invested two to five times more in M&A than Greenfield investments during the past
15 years. In developing countries, however, Greenfield investment has been the major
mode of FDI. This trend implies, to some extent, that developing countries do not as yet
have abundance of firms attractive enough for foreign investors to acquire. However, for
host developing countries seeking large capital investment in infrastructure and human
resources, Greenfield investment provides large prospects for streamlining government
and private sector investments that can be complementary. For developing countries
with severe budgetary constraints, increased Greenfield investment may also
compensate for underinvestment by the governments.

The gradual increase in M&A and Greenfield investment as well as its relative
importance in developed and developing countries should be reflected in the trends of
FDI across time. Table II.2 presents inward flows and stocks of FDI during the past two
decades. It shows a gradual increase in FDI flows until the year 2000 for developed and
developing countries. The sudden drop in FDI flows in the year 2001 is related to
depressed stock market sentiments and business cycles, both of which led to a massive
drop in M&A investments especially in the developed countries (UNCTAD, 2002a).
Table II.2 also indicates that FDI in developing countries is not necessarily a small
fraction of the global FDI. While the drop in FDI in the year 2001 is acute in developed
countries, developing countries show a relatively mild drop4. This is presumably due to
the fact that a large fraction of FDI in developing countries is in Greenfield investment
(UNCTAD, 2001).

In spite of the rapid growth in the level of FDI during the past two decades, these
investments have not been equally distributed within the developing regions. To see this,
Table III.3 breaks down the flows and stocks of FDI by regions within developing country.
The African region has not been successful in attracting a large amount of FDI due to the
fact that it has only been able to attract FDI in primary and resource-based
manufacturing sectors, both of which have limited scope for future expansion. The Latin
American and the Caribbean (LAC) and Asian & Pacific (AP) regions, however, have
both succeeded in increasing the level of FDI during the past two decades. This is partly
due to these regions successfully attracting relatively higher value-added FDI over time.
Table II.3 thus indicates large cross-regional inequality in the level and growth of FDI
over the past two decades.

One reason behind cross-regional disparities of FDI in developing countries may
be due to concentration of FDI in selected countries. Indeed, the five largest host
countries in the developing world received 62 per cent of total FDI inflows while the ten
largest host countries received three-quarters of total FDI in 2001 (UNCTAD, 2002a).
This, however, does not necessarily diminish the role of the small country’s role in FDI. If
FDI is measured as a fraction of GDP, many small countries actually fair better than most
of the above-mentioned five largest host developing countries (World Bank, 2003).
To summarise, FDI has been the most important form of financial flow in the
developing countries with Greenfield investment being the most dominant form. Although
these countries have enjoyed a gradual increase in both the stocks and flows of FDI over
the past decade, the growth of FDI was unevenly dispersed across the developing
region.

OECD DEVELOPMENT CENTRE
Working Paper No. 211
HUMAN CAPITAL FORMATION
AND FOREIGN DIRECT INVESTMENT
IN DEVELOPING COUNTRIES
by
Koji Miyamoto





Trends in FDI in Developing Countries Background - To learn more about this author, visit OECD Development Centre's Website.

Like this article? Share it with your friends

Article Feedback
 Article Feedback No article feedback found.
  Leave Your Feedback
article feedback

Article Feedback
John Power
John Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website

John Alexander
John has taught keyword research and SEO skills to small groups of business owners and Webmasters from over 80 different countries world wide since 2002. John is also the Director of Search Engine Academy ; Co-director of Training at Search Engine Workshops offering live, SEO Workshops with his partner SEO educator Robin Nobles, author of the very first comprehensive online search engine marketing courses at SEO Training Online and the SEO Workshop Resource Center.
I look forward to hearing from you! - Visit John Alexander's Website

Jay Kubassek
(Jay's Full Bio: EvanCarmichael.com/jaykubassek)  In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.

 

As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)

 

Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. 

 

Jay resides in NYC with his wife Jamie, son Milo and dog Cooper.  Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website


To learn more about the Evan Elite Author Program please contact us.

About The Author


OECD Development Centre
(Visit OECD's Website) Created in 1962 by the Organisation for Economic Co-operation and Development (OECD) in Paris, the Development Centre is an interface between OECD Member countries and the emerging and developing economies. The Development Centre occupies a unique place within the OECD and in the international community. It is a forum where countries come to share their experience of economic and social development policies. The Centre contributes expert analysis to the development policy debate. The objective is to help decision makers find policy solutions to stimulate growth and improve living conditions in developing and emerging economies.

OECD Development Centre is a Platinum author on EvanCarmichael.com
About The Author

View Author Blog
View Author Blog

View Author Video
View Author Video

Free Downloads


OECD Development Centre's

Complete
List Of
African-Accounts
Articles

Name
Email
If you enjoyed this article, get OECD Development Centre's Complete List of African-Accounts Articles For FREE!

More OECD Development Centre
The Rise of China and India Whats in it for Africa
VI NEW CHALLENGES FOR SOCIETIES AND DEVELOPMENT ASSISTANCE
V INSTITUTIONAL AND POLICY REQUIREMENTS FOR ECOMMERCE DEVELOPMENT
III ECOMMERCE AND SMALL ENTREPRENEURS
BIBLIOGRAPHY HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
Preface ECOMMERCE FOR DEVELOPMENT PROSPECTS AND POLICY ISSUES
Solid Growth in Sight but There Are Risks
Empirical Evidence Does Human Capital Matter
VII CONCLUSION ECOMMERCE FOR DEVELOPMENT PROSPECTS AND POLICY ISSUES
Trends in Human Capital Formation in Developing Countries Background
Free Downloads


 
 
 


Evan Elite Authors
Jay Kubassek  
John Power  
George Ludwig  
Evan Elite Authors

Become An Author
Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details.
Become An Author

Evan's Latest Video
Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media
Evan's Latest Video

Business Opportunities
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"

How to Start An Online Business

Click Here To Learn More
Business Opportunities



Evan's Newsletter
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
Name:
Email:
Evan`s Newsletter

Free Downloads
How To Double Your Business Icon How To Double Your Business
Speed Business Networking Icon Speed Business Networking
Get 'em Good or Get 'em Gone! Icon Get 'em Good or Get 'em Gone!
Memorandum Template 1 Icon Memorandum Template 1
Make Attitude Your Ally Icon Make Attitude Your Ally
Free Downloads - Complete List

Entrepreneur Tools and Guides
The Top 10 ProBlogger Posts - Best Posts for Bloggers
The Top 10 ProBlogger Posts
Best Posts for Bloggers
 
Top 50 Niche Blogs 2009
Top 50 Niche Blogs 2009
Top 50 Niche Blogs 2009
 
Entrepreneur Tools and Guides

SEO For Africa
SEO For Africa
Teresa Quiasse Timba Boane, Maputo, Mozambique,
Teresa Quiasse Timba
Boane, Maputo, Mozambique
SEO For Africa

If I Were A Startup...
Chris Nguyen, 30+ national clients on $0
Chris Nguyen
30+ national clients on $0
Geoff Whitlock, $53k to $507k in 3 years
Geoff Whitlock
$53k to $507k in 3 years
If I Were A Startup... - Complete List

Famous Entrepreneurs
Larry Ellison, Oracle
George Steinbrenner, New  York Yankees
George Steinbrenner
New York Yankees
Famous Entrepreneurs - Complete List

Entrepreneur Advice
Guy Kawasaki, The Art of the Start
Guy Kawasaki
The Art of the Start
Jeffrey Gitomer, The Sales Bible
Jeffrey Gitomer
The Sales Bible
Entrepreneur Advice - Complete List

Popular Articles
(Premium Authors)

     The New Face of Business Is An Old One The REAL Secret to Excelling In Business Today
By Kim Castle
     A Point in Every Direction Is the Same As No Point At All
By Kim Castle
     Are You My Mentor
By Kim Castle

Have A Suggestion?
Toronto Salsa Classes / Toronto Salsa Lessons Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
Have A Suggestion?

More Evan Carmichael
More popular articles
- Franchise My Business
More Information