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Commentary

Measures to Attract FDI locations for investment; (b) investment-


generating activities through direct target-
ing of firms by promotion of specific sectors
and industries, and personal selling and
Investment Promotion, Incentives establishing direct contacts with prospec-
tive investors; (c) investment-service acti-
and Policy Intervention vities tailored to prospective and current
investors’ needs; and (d) raising the
realisation ratio (i e, percentage of the FDI
Foreign direct investment (FDI) is attracted into countries for approvals translated into actual flows).
different reasons. At a general level, in order for a country to be Table 2 summarises the annual budgets on
more attractive to investors, there is a need to create an enabling investment promotion by selected coun-
environment by reducing so-called hassle costs. But what are these tries in Asia and elsewhere. As is apparent,
Singapore – a major success story as far
costs? A new study involving 32 developing economies indicates as FDI-led development is considered
there exists a statistically and economically significant negative [Rajan 2003] – massively outspent the
nexus between administrative costs and FDI to GDP ratio after other countries on a per capita basis.
A case might be made for establishing
controlling for other factors. a one-stop investment promotion agency
(IPA) to assist in the entry and operation
RAMKISHEN S RAJAN efficiency seeking or strategic-asset seek- of FDI. The need and logic for an IPA
ing. Nonetheless, at a general level, in appears to have been embraced by a number
I order for a country to be more attractive of countries, with there being about 160
Introduction to investors (both local and foreign), there nationals IPAs and over 250 sub-national
is a need to put in place measures to ensure ones [UNCTAD 2001]. While a one-stop
an enabling environment by reducing so- investment promotion agency could

T
he working assumption nowadays
is that in a relatively non-distorted called hassle costs. But what are these facilitate FDI by lowering administrative
domestic policy environment, costs? Apart from costs arising from an delays and associated cost overruns,
foreign direct investment (FDI) brings in unstable macroeconomic and regulatory Sanjaya Lall (2000) correctly notes that
much-needed capital, technical know-how, environment, administrative barriers and Table 1: Summary of Administrative
organisational, managerial and marketing red tape – such as those outlined in Table 1 Procedures Faced by an Investor
practices and global production networks, – can significantly raise the costs of es-
tablishing and doing business. A new study Category and Item
thus facilitating the process of economic
growth and development in host countries involving 32 developing economies indi- Entry Approvals:
[Lall 2000; OECD 2002:Chapters 1 and cates there exists a statistically and eco- Company registration
nomically significant negative nexus be- Investment code registration
3]. For instance, according to the UNCTAD Initial bank deposit
(1999), FDI can complement local develop- tween administrative costs and FDI to Residence and work permits
ment efforts by: (a) increasing financial GDP ratio after controlling for other fac- Tax office registration
resources for development; (b) boosting tors [Morisset and Neso 2002]. Foreign investment licensing
Business and trading permits
export competitiveness; (c) generating em- Statistical office registration
ployment and strengthening the skills base; II Existence, conformity, opening reporting
(d) protecting the environment and social Investment Promotion Health care and pension plans
Social security registration
responsibility; and (e) enhancing techno- Land, Site, Development, Utilities:
logical capabilities (transfer, diffusion and Over and above the creation of a Access to Land
generation of technology). Technology business-friendly environment, it may be Town planning certificate
transfer from FDI in turn operates via four important for a potential host country to Site inspections and general approvals
Building permits
related channels: (i) vertical (backward actively undertake investment-promotion Electricity and power connection
and forward) linkages with suppliers or policies to fill in information gaps or correct Telephone and telex
purchasers in the host countries; (ii) hori- perception gaps that may hinder FDI Water and sewerage
zontal linkages with competing or comple- inflows. A commonly used definition of Post, box and private bag
Operation requirements:
mentary companies in the same industry; investment promotion is “activities that Import-export intention and permits
(iii) migration of skilled labour; and (iv) the disseminate information about, or attempt Import-export clearance process
internationalisation of R and D [OECD to create an image of the investment site Foreign exchange control
2002:69]. and provide investment services for the Fiscal situation certificate
Health and safety inspections
In view of this largely benign view of prospective investors” [Wells and Wint Labour inspections
FDI, there has been an intense ‘global 1990]. Social welfare plan payments
race’ for foreign investment. No doubt, Any investment promotion strategy must
Source: J Morisset and O L Neso (2002),
FDI is attracted into countries for different be geared towards the following: (a) image- ‘Administrative Barriers to Foreign
reasons – resource seeking (natural or building activities promoting the country Investment in Developing Countries’,
human resources), market seeking, and its regions and states as favourable Transnational Corporations, 11, pp 99-121.

12 Economic and Political Weekly January 3, 2004


“unless the agencies have the authority be advisable for countries to eschew codes of conduct may be useful for effec-
needed to negotiate the regulatory system, selective policy intervention. As Sanjaya tive and economically rational use of such
and unless the rules themselves are sim- Lall notes: incentives.
plified, this may not help. On the contrary, FDI strategy is an art not a science…If Table 4 highlights some common tax
there is a very real risk that a ‘one stop administrative capabilities are not appro- incentives – (a) reduced corporate income
shop’ becomes ‘one more stop’” (p 10). priate to the skill, information, negotiation taxes; (b) tax holidays; (c) investment
The foregoing conclusion finds justi- and implementation abilities needed, it may allowances and tax credits; (d) accelerated
fication from a recent empirical analysis be best to minimise interventions with the depreciation; (e) exemptions from selected
of IPAs in 58 countries between February market: to simply reduce obstacles in the indirect taxes; and (f) export processing
and May 2002 [Morisset 2003]. In particu- way of FDI, minimise business costs and zones (EPZs) – and their relative merits.
lar, while there is some evidence that IPAs leave resource allocation to the market… Tax holidays and accelerated depreciation
have a positive impact on FDI, this is more (T)here is no ideal universal strategy on appear to be the least desirable, while
likely to be the case in circumstances where FDI. Strategy has to suit the particular accelerated depreciation seems to be the
IPAs (a) have a high degree of political conditions of the country at the particular most efficient [For an elaboration of the
visibility (for instance, by being linked to times, and evolve as its needs change and various tax incentives see Fletcher 2002].
the highest government official such as the its competitive position in the world alters As noted, tax incentives form only a part
prime minister’s office); (b) have active [Lall 2000:20-21]. of the overall picture. Even though formal
private sector involvement, via, for in- tax incentives may not be available, busi-
stance, participation on the IPA’s board; III nesses may still benefit significantly from
and (c) operate in a country with an overall Fiscal and Financial Incentives
good investment environment. The study Table 3: Functions of an Investment
further finds that the types of functions that Promotion Agency (IPA)
Countries have and will increasingly
IPAs undertake have bearing on their compete with each other to attract FDI by Image Building: Refers to the function of creating
effectiveness (see Table 3 for definitions). offering a number of incentives and other the perception of a country as an attractive site
‘Policy advocacy’, which is defined as for international investment. Activities commonly
concessionary measures. Apart from fiscal associated with image building include focused
steps to improve overall investment climate or tax incentives, defined as “policies that advertising, public relations events and the
and identify views of private sector, are designed to reduce the tax burden of a generation of favourable news stories by
appears to be the most effective function. firm” (including loss write-offs and accel- cultivating journalists.
This is followed by investment facilitation Investor Facilitation and Investors Servicing: Refers
erated depreciation), countries could offer to the range of services provided in a host country
or servicing (the roles conventionally attri- financial incentives, defined as “direct that can assist an investor in analysing investment
buted to a one stop shop), and image build- contributions to the firm from the govern- decisions, establishing a business, and
ing. IPAs seem least effective in actually ment” (including direct capital subsidies, maintaining it in good standing. Activities include
generating sector-specific investments. information provision, ‘one-stop shop’ service
subsidised loans or dedicated infrastruc- aimed at expediting approval process, and various
This suggests that growth-enhancing ture) [World Bank 2003:Chapter 3]. assistance in obtaining sites, utilities.
policy intervention probably ought not to Many east Asian economies have been Investment Generation: This entails targeting
be sectorally biased. Instead, industrial particularly aggressive in using preferen- specific sectors and companies with the aim of
policy ought to be focused on enhancing creating investment leads. Activities include
tial tax treatments and other implicit and identification of potential sectors and investors,
a country’s general capability to benefit explicit subsidies to attract FDI, i e, ‘bid- direct mailing, telephone campaigns, investor
from FDI by (a) improving the general ding wars’ or ‘fiscal wars’. To be sure, forums and seminars and individual presentations
quality of the country’s labour force and while systematic evidence of such pheno- to targeted investors.
infrastructure; (b) developing local skills Policy Advocacy: This consists of the activities via
menon is limited to specific industries (like which the agency supports initiatives to improve
and technology and local learning; and automobiles and regional headquarter the investment climate and identifies the views of
(c) ensuring a stable and conducive overall services), as Oman (2000) notes, “the the private sector on that matter. Activities include
macroeconomic and regulatory environment. prisoner’s dilemma nature of the compe- surveys of the private sector, participation in task
This said, the UNCTAD (2002) contin- forces, policy and legal proposals, and lobbying.
tition creates a permanent danger of such
ues to advocate a policy of targeted pro- wars” (p ii). As is apparent in the case of Source: Reproduced with minor changes from
motion, suggesting it has potentially high India and the US, the danger of fiscal wars J Morisset (2003). ‘Does a Country Need a
payoffs, though also acknowledging that Promotion Agency to Attract Foreign Direct
is particularly prevalent among regions Investment? A Small Analytical Model
it can be a risky proposition. The UNCTAD within large countries. From the viewpoint Applied to 58 Countries’, Policy Research
position finds support from the successes of the country as a whole, broad national Working Paper No 3028, The World Bank.
of countries like Singapore whose invest- Table 2: Annual FDI Promotion Budget of Selected Countries, 1999
ment promotion authority, the Economic
Development Board (EDB), has quite Country Annual FDI Promotion Population (Millions) Per Capita Budget
Budget (US$ Millions) (US$)
successfully targeted specific global cor-
porations or broad sectors to invest in the Asian Countries
city state. [For instance see Oman Indonesia (BKPM) 2.8 207 0.01
Malaysia (MIDA) 15 22.7 0.66
2000:Chapter 2.]1 Philippines (BOI) 3 76.8 0.04
More generally, the choice of the exact Singapore (EDB) 45 3.2 14.06
type and extent of such investment pro- Memo: Non-Asian Countries
motion activities and agencies must be Dominican Republic (IPC) 8.8 8.4 1.05
Mauritius Export Development
based on a careful and systematic evalu- and Investment Authority (1996) 3.1 1.2 2.58
ation of potential costs and benefits. One Ireland (IDA, 1999, including grants)a 213 (41) 3.7 57.57 (11.16)
size cannot fit all countries at all times. Costa Rica (CINDE) 11 3.5 3.14
Particularly in cases where administrative Notes: a) Figures in parenthesis exclude grants
capacity is weak, government failure is Source: D W Te Velde (2001), ‘Policies towards Foreign Direct Investment in Developing Countries:
pervasive, and resources are scarce, it may Emerging Issues and Outstanding Issues’, Overseas Development Institute, London.

Economic and Political Weekly January 3, 2004 13


Figure: Global FDI Flows (US$ Billions), 1993-2002 fiscal costs of such incentives along with
1400 those of investment promotion activities
noted above can be fairly burdensome and
must always be kept in mind when decid-
1200 ing if and the extent to which such mea-
sures are to be utilised.
1000
IV
FDI Prospects and
FDI Flows (US $ bn.)

800 Role of Government


The current global environment is
600 characterised by a general slow down in
FDI inflows to developing economies, on
the one hand, and the existence of a large
400 number of investment alternatives, on the
other. Specifically, there have been grow-
ing fears that FDI is being diverted from
200 south-east Asia and other developing coun-
tries in the Asia-Pacific to China.6 In
addition, the increased uncertainty and
0
heightened international political and
1993 1994 1995 1996 1997 1998 1999 2000 2001
security riskiness worldwide, and cyclical
Years
concerns with regard to oversupply of
World Developed Countries Developing Countries Central and East certain goods and services, may preclude
Source: UNCTAD FDI Database. global FDI from growing nearly as rapidly
as it did in the 1990s. A recent UNCTAD
financial incentives. 2 For instance, invest (by playing off one potential host research note refers to “the most dramatic
Singapore provides subsidies to investors country against another) [Oman 2000]. downturn of FDI inflows in history” to des-
that go well beyond traditional tax mea- Conversely, from the potential host cribe the current global investment climate
sures involving training, expenditure, country’s perspective, apart from being [UNCTAD 2003].7 The downturn has been
pricing of land and utilities, and even taking costly (given the tax revenues foregone as particularly sharp in developed countries
rather large equity stakes in selected ven- well as costs of implementation and over- which continue to receive over two-thirds
tures.3 As with the formal tax incentives, sight), such incentives will be least effec- of global FDI flows (see the Figure).
financial incentives are likely to benefit tive when used as substitutes for necessary Counterbalancing this pessimism is the
large companies, both domestic and for- investment-conducive policies such as possibility that heightened uncertainty
eign, disproportionately. In turn, states like disciplined macroeconomic policies, could lead investors to consider diversi-
Singapore with strong fiscal positions can adequate infrastructural and supporting fying investments geographically. The
use a combination of low tax rates and facilities, and a stable and transparent regu- recent SARS outbreak centred in Greater
aggressive fiscal incentives as competitive latory environment. China appears to have fortified this con-
strategies to attract FDI vis-à-vis fiscally In the final analysis, countries will no clusion [Rajan 2003b]. However, if the
weak states in neighbouring south-east Asia doubt continue to employ FDI incentives, hitherto peripheral countries are to benefit
(given that such competition tends to be not least because unilateral withdrawal of from this desire by foreign investors for
largely intraregional), but elsewhere as well. incentives as policy instruments by any risk diversification, they need to ensure that
While the theoretical literature on FDI single country might be potentially costly they have in place sound macroeconomic
incentives is burgeoning [see the review to it. However, the use of such incentives policies (including a ‘fairly valued’ exchange
by Deveruex 1990], the empirical litera- ought to be guided by certain common- rate) and a favourable investment climate
ture in this area is rather lagging. However, sensical principles. Ad hoc, discretionary so as to be seen as viable investment
the available empirical evidence to date regimes which could give rise to rent- alternatives. In this regard, steps develop-
suggests that such fiscal incentives may be seeking activities should be eschewed. ing countries need to take to ensure an
important at the margin in influencing Focus should instead be on deploying a enabling business environment centre
investment decisions. Incentives are par- simple and predictable tax system with low around enhancing inter-sectoral factor
ticularly useful when used essentially as rates for all investors, with there being no mobility (and especially reducing labour
signalling devices about the government’s/ preference between domestic and foreign market rigidities), dismantling barriers to
country’s general (welcoming) attitude investors (i e, uniformity). Corporate tax the free entry and exit of firms, relieving
towards foreign investment and the overall rates ought to be comparable to those some infrastructural bottlenecks (roads,
business environment.4 Indeed, a recent prevailing in capital exporting countries ports and storage), reducing other trans-
OECD study suggests the existence of a [Moran 1998].5 actions costs of doing business (invest-
two-stage investment decision process. However, three points bear emphasising. ment approvals, custom clearance, etc),
Investors initially shortlist a set of poten- One, complexity and uncertainty (i e, fre- including regulatory and legal impediments
tial host countries on the basis of economic quent changes) in FDI-related policies (be and strengthening overall governance,
and political fundamentals. Investment they incentives, taxes or laws) can have including strengthening intellectual
incentives play no role at this stage. It is a significant deterring effect on inflows. property rights (IPRs) [World Bank
only after the shortlist is made that inves- Two, beyond a signalling role, FDI incen- 2003:Chapter 3].
tors consider and in fact seek out invest- tives do not make up for deficiencies in The role of IPR regime and dispute
ment incentives before deciding where to the overall investment climate. Three, the resolution mechanism warrants mention.

14 Economic and Political Weekly January 3, 2004


While the empirical evidence regarding best. [For instance, see OECD 2002:Chap- 1 For instance, see Oman (2000), Policy Com-
the impact of the quality of the IPR regime ter 10.] There may in fact be a tradeoff in petition for Foreign Direct Investment: A Study
on the magnitude of FDI inflows remains the sense that ‘artificial’ attempts to of Competition among Governments to Attract
uncertain, there is evidence to suggest that indigenise FDI activities may make the FDI, OECD Development Centre, Paris.
However, to date there has not been a careful
inadequate safeguards for protection of affiliate operations of multinationals less cost-benefit analysis of the EDB’s promotion
IPRs cause a diversion of investment from integrated with the production network of activities given unavailability of data.
technology intensive industries (‘second- the parent to the detriment of the host 2 See M Asher and R Rajan (2001), ‘Globali-
generation investments’) and more gener- country (i e, ‘screw-driver operations’).8 sation and Tax Systems: Implications for
ally, from projects involving production – To maximise spillover benefits from FDI Developing Countries with Particular Refer-
especially longer-term investments – to on a sustained basis, host country charac- ence to Southeast Asia’, ASEAN Economic
activities involving distribution teristics (in terms of human capital, tech- Bulletin, 18, pp 119-39 and M Asher and R
[Smarzynska 2002]. nological capacity, etc) must be improved. Rajan (2003). ‘Economic Globalisation and
With regard to specific investment pro- Any other policy is likely to be ineffective Taxation: With Particular Reference to
Southeast Asia’, in R Rajan (2003).
motion, too many developing countries or short-lived at best, distortionary and 3 For instance, take the Local Industrial
make public new policy pronouncements detrimental at worst. EPW Upgrading Programme (LIUP) of Singapore’s
regarding ambitious investment and EDB as an example. The aim of this scheme
overall growth-enhancing polices but fail Notes is for the multinationals to help raise the
at the implementation stage. Done often efficiency of local suppliers in stages. A large
part of the success of this scheme has been
enough this erodes the credibility of the [Excellent and detailed comments by Mukul Asher due to the financial incentives offered by the
authorities, thus making it that much harder enhanced the quality of the paper. Research EDB in the form of subsidising of training
to attract FDI. It is of little surprise then that assistance by Sadhana Srivastava is gratefully programmes by the EDB itself (OECD 2002,
FDI is concentrated in developed countries acknowledged. The usual disclaimer applies.] op cit, Chapter 10).
(largely due to cross-border merger and
acquisitions activities) and a handful of Table 4: Relative Pros and Cons of Selected Types of Fiscal and Financial Incentives
developing ones, while others lag far Pros Cons
behind.
Lower Corporate Income Tax Rate on a Selective Basis
An insufficiently recognised point is that § Simple to administer. § Largest benefits go to high-return firms that are likely to have
for FDI to have a significantly positive § Revenue costs more transparent. invested even without incentive.
impact on the host country it must have § Could lead to tax avoidance via transfer pricing (intracountry and
attained a minimum threshold of develop- international).
§ Acts as windfall to existing investments.
ment itself [OECD 2002:Chapter 2]. In- § May not be tax spared by home country tax authorities.
deed, a careful examination of the empiri- Tax Holidays
cal studies linking FDI and technological § Simple to administer. § Similar to lower Corporate Income Tax rates, except that it might
development suggests that FDI is more § Allows taxpayers to avoid contact be tax spared.
with tax administration § Attracts projects of short-term maturity.
likely to be a significant catalyst to overall (minimising corruption). § Could lead to tax avoidance through the indefinite extension of
industrial development the higher the holidays via ‘redesignation’ of existing investments as new
income of the host country. This in turn investments.
is often interpreted as signifying that the § Creates competitive distortions between existing and new firms.
host country must be capable of absorbing § Costs are not transparent unless tax filing is required, in which
case administrative benefits are foregone.
the new technology manifested in FDI [for Investment Allowances and Tax Credits
instance Blomstrom et al 1994:521-33]. In § Costs are relative transparent. § Distorts the choice of capital assets towards projects of short-
similar vein, another common finding is § Can be targeted to certain types term maturity since an additional allowance is available each
that greatest technological spillovers from of investment. time an asset is replaced.
§ Qualified enterprises might attempt to abuse the system by
FDI occur when the technological gap selling and purchasing the same assets to claim multiple
between local and foreign enterprises is allowances.
‘not very large’, and crowding in of FDI § Greater administrative burden.
and technology transfer is more likely the § Discriminates against investments with delayed returns if loss
carry-forward provisions are inadequate.
higher the level of human capital [OECD Accelerated Depreciation
2002: Chapters 5 and 6; Borensztein et al § Similar benefits to investment § Some administrative burden.
1995]. allowances and credits. § Discriminates against investments with delayed returns if loss
In view of the above, and at the risk of § Generally does not discriminate carry-forward provisions are inadequate.
against long-lived assets.
generalising, the most effective type of § Moves the corporate tax closer to
policy intervention appears to involve broad a consumption-based tax, reducing
measures to enhance overall human capi- the distortion against investment
tal and technical capabilities of the domes- typically produced by the former.
tic economy on a non-discriminatory basis Exemptions from Indirect Taxes (VAT, Import Tariffs, etc)
§ Allows taxpayers to avoid contact § VAT exemptions may be of little benefit (under regular VAT, tax
rather than selective intervention to with tax administration on inputs is already creditable; outputs may still get taxed at
maximise linkages between local firms (minimising corruption) later stage).
and local subsidiaries of multinationals or § Prone to abuse (easy to divert exempt purchases to unintended
technology transfer domestically from FDI. recipients).
Export Processing Zones
In any event, policies such as domestic § Allows taxpayers to avoid contact § Distorts locational decisions.
content or performance requirements, joint with tax administration § Typically results in substantial leakage of untaxed goods into
venture requirements, caps on foreign (minimising corruption) domestic market, eroding the tax base.
ownership, technology licensing, location Source: K Fletcher (2002). ‘Tax Incentives in Cambodia, Lao PDR, and Vietnam’, paper prepared for the
or local employment requirements and the IMF Conference on Foreign Direct Investment for Cambodia, Lao PDR and Vietnam, (Hanoi,
like have generally had mixed results at Vietnam, August 16-17) with slight modifications.

Economic and Political Weekly January 3, 2004 15


4 This conclusion with regard to fiscal incentives Morisset, J and O L Neso (2002): ‘Administrative UNCTAD (1999): World Investment Report 1999,
in east Asia is drawn by V Tanzi and P Shome Barriers to Foreign Investment in Developing Oxford University Press, New York and Geneva.
(1992), ‘The Role of Taxation in the Deve- Countries’, Transnational Corporations, 11, – (2001): ‘The World of Investment Promotion
lopment of East Asian Countries’ in T Ito and pp 99-121. at a Glance: A Survey of Investment Promotion
A Krueger (eds), The Political Economy of Tax Oman, C (2000): Policy Competition for Foreign Practices’, United Nations Advisory Studies
Reform, University of Chicago Press, Chicago. Direct Investment: A Study of Competition No 17, UNCTAD/ITE/IPC/3, New York and
5 Indeed, the close nexus between host and source among Governments to Attract FDI, OECD Geneva.
country tax policies is a rather under- Development Centre, Paris. – (2002): World Investment Report 2002, Oxford
appreciated but significant factor in Rajan, R (2003): ‘Sustaining Competitiveness in University Press, New York and Geneva,
determining the effectiveness of tax incentives the New Global Economy: Introduction and Chapter 3.
(for instance, see Asher and Rajan 2001 and Overview’ in R Rajan (ed), Sustaining – (2003): ‘Prospects for Global and Regional FDI
2003, op cit). Competitiveness in the New Global Economy: Flows’, Research Note, May 14.
6 For instance, see R Rajan (2003a). ‘Emergence A Case Study of Singapore, Edward Elgar, Wells Jr, L and A Wint (1990): Marketing a
of China as an Economic Power: What Does Cheltenham, 2003. Country: Promotion as a Tool for Attracting
It Imply for Southeast Asia?’, Economic and Smarzynska, B K (2002): ‘Composition of Foreign Foreign Investment, IFC and MIGA,
Political Weekly, 38 (26), June 28, 2003, pp Direct Investment and Protection of Intellectual Washington, DC.
2639-44 and R Rajan (2003b), ‘Implications Property Rights: Evidence from Transition World Bank (2003): Global Economic Prospects
of the Emergence of the PRC as an Economic Economies’, Policy Research Working Paper and the Developing Countries 2003, The World
Power for ASEAN: Threat, Opportunity, or No 2786, The World Bank, February. Bank, Washington, DC, Chapter 3.
Both?’, report prepared for the Asian
Development Bank (April). For a discussion
of why India versus China, see R Maitra (2003).
‘Why India’s Economy Lags Behind China’s’,
Asia Times, September 9 and Y Huang T
Khanna (2003). ‘Can India Overtake China?’,
Foreign Policy, July-August, pp 74-81.
7 General reasons behind this decline include
continued weakness and uncertainty in global
economic prospects, decline in equity markets
worldwide and drop in the value of cross-
border mergers and acquisition (M and A)
activities.
8 In addition, there are acute risks in restricting
FDI inflows or activities so as to promote the
development of local enterprises (conventional
‘infant industry’ argument). For instance, it
is often quite difficult in reality to distinguish
between crowding out and legitimate
competition.

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16 Economic and Political Weekly January 3, 2004