What Do We Know about the Developmental Impacts of TNCs?

Abstract

The rapid growth of Foreign Direct Investment (FDI) in many developing and transition countries relative to other variables such as public development aid or domestic capital formation, suggests that inward FDI has come to play a more significant role than it did some decades ago. This economic evolution has been accompanied by a political shift in the perception of FDI and foreign-owned firms: an overwhelming part of the developing and transition world has abandoned the Marxian and post-Marxian paradigm, which demonised FDI, and adopted a friendly political behaviour to foreign investors. The gradual diffusion of the ‘Washington consensus’ in the developing and transition world has even provoked large enthusiasm relative to the developmental impacts of FDI. Supporters of the new paradigm assert that FDI is unequivocally good for development and that the more a country can attract FDI the better it is for its growth rate and development. However, in the last few years some countries have adopted less FDI-friendly policy regimes as they had some doubts about the automatic ‘development effects’ of FDI (see Chapter 3).