DIRECT INVESTMENT BY FIRMS FROM LESS DEVELOPED COUNTRIES 1

Abstract

Introduction A NEW component of foreign direct investment (FDI) is beginning to be recognized in some Less Developed Countries (LDCs). As LDCs develop, and as some LDCs form local common markets, firms based in one LDC are beginning to make substantial direct investments in the modern manufacturing sector of neighbouring LD Cs [23]. Until recently, studies of FDI in LDCs have either ignored these LDC firms, or lumped them together with other multinational enterprises (MNEs).2 This paper examines multinational enterprises which invested in Thailand whose parent firm was located in an LD C and tentatively draws some general conclusions about the characteristics of LDC investments there.3 Many LDCs have followed a development policy of rapid, importsubstituting industrialization. To try to achieve growth in industrial output, they have encouraged investment by MNEs to provide capital, technology, managerial skills, and access to foreign markets. The costs to the host country of this investment are sometimes quite high and may include loss of control of the local economy, cultural dependence, eventual capital and profit repatriation, monopoly profits accruing to foreign firms, the use of 'inappropriate technology', and the production of goods which are inappropriate to the income level of the majority of the population [18]. These conflicts between the host country and foreign investors have been extensively examined in the literature [16, 22]. Over time, many LDCs have begun to emphasize the costs and question the benefits of foreign direct investment. Some LDCs have imposed restrictions on some types of foreign investment, some have banned it entirely. But should the policies of LDCs be the same toward all firms from all countries? Crookell [5] has argued that LD Cs should differentiate between types of foreign investment based on whether the firm is oriented toward exports or toward engaging in local market development. Is it useful for the host LDC to distinguish between foreign investment based on the home country of the parent firm?