The Investment Development Path Theory: Empirical Evidence from Global Data

Abstract

Considering the changing foreign investment environment and composition of countries in the development classifications, we examined the investment development path (IDP) based on data from 137 countries over 29 years (1991 to 2019). Categorising the countries into developing, emerging, and developed, we found developing countries to be in stage IV, ahead of theoretical stage II. Emerging economies are in stage II, a step below the theoretical stage III. Only developed countries have maintained their position in stage V as proposed by the IDP theory. Globally, the data shows countries have traversed stages I, II, III, IV and V. Firms in developing countries must maintain their competitive advantage whilst relocating operations with waning competitive advantage abroad. Emerging economies must grow their economies faster than the current rate. The extra income should support an ambitious foreign investment policy that would escalate the current level of outward foreign direct investment. Governments in developed countries must pursue the role of “strategic oligopolists”, recognising and monitoring the conduct of other governments in the development and implementation of their multinational enterprise development strategies.