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Foreign direct investment and development: Insights from literature and ideas for research

Christine Qiang's picture
 The Leeds Library by Flickr user Michael D Beckwith

For many decades, academia and policy making has debated about the role of Foreign Direct Investment (FDI) in development. Such question has been very difficult to elucidate, not only because the discussion has being colored by many ideological dogmas, but also because the very fundamental characteristics of cross border investment have evolved over time. Indeed, over the last five decades, the paradigm of FDI has changed significantly. Traditionally FDI has been visualized as a flow of capital, flowing from “North” to “South” by big multinational enterprises (MNEs) from industrial countries investing in developing countries, traditionally aiming to exploit natural resources in the latter or to substitute trade as a means to serve domestic consumption markets. Such paradigm has changed significantly.
Today, FDI is not only about capital, but also --and more important-- about technology and know-how, it no longer flows from “North” to “South”, but also from  “South” to “South” and from “South” to “North”. Further, FDI is no longer a substitute of trade, but quite the opposite. Today FDI has become part of the process of international production, by which investors locate in one country to produce a good or a service that is part of a broader global value chain (GVC). Investors then, have become traders and vice-versa. Moreover, FDI is now not only carried out by only big MNEs, but also from relatively smaller firms from developing countries that are investing in countries beyond their home countries. Last but not least, cross-border investment is no longer only about portfolio investment and FDI. International patterns of production are leading to new forms of cross-border investment, in which foreign investors share their intangible assets such as know-how or brands in conjunction with local capital or tangible assets of domestic investors. This is the case of non-equity modes of investment (NEMs) –such as franchises, outsourcing, management contracts, contract farming or manufacturing.

Economic inclusion can help prevent violent extremism in the Arab world

Hafez Ghanem's picture

Homs, Syria, September 2013. Destroyed a residential area in the city of Homs injured in fighting between rebels of the Syrian National Army

Twin suicide bombers in Beirut were followed the very next day by the coordinated attacks in Paris. These were preceded by news reports that “more likely than not” a bomb brought down the Russian plane over Egypt’s Sinai, together with the claim by a Daesh  (the Arabic acronym for ISIS) affiliate that it was behind that attack. , These attacks underscore the dangers of violent extremism. People of many different nationalities have been victims of violent extremist acts in the Middle East, Europe, Africa, Asia, and North America.

Does emigration really increase the wages of non-emigrants?

Alessio Brown's picture

Although immigration and its effect on labor markets in receiving countries is a frequent focus of research and public concern, there is less known about the impact of emigration on sending countries. Yet, as Benjamin Elsner explains in his recent study for IZA World of Labor, emigration actually has positive and large effects on wages in sending countries. 

How digital financial services boost women’s economic opportunities

Leora Klapper's picture

Imagine having to skip work every month to travel to the city center just to pay your electricity bill or your child’s school fee? Would you not worry if your income relied on remittances and you were unable to pay rent because they were tied up in a network of agents? And wouldn't it frustrate you if you didn’t have a say in how your salary was spent or invested?

Having a bank account could help in all of these situations. Most of us probably have auto-pay set up so we don't need to worry about our monthly bill payments or money transfers. But the conveniences we take for granted are out of reach for the world's 1.1 billion women who lack an account. According to World Bank’s Global Findex database, men in developing countries are 9 percentage points more likely than women to own an account. The gap is largest in South Asia, where only 37 percent of women have an account compared with 55 percent of men.

Does Financial Inclusion Exclude? Formal Savings Reduces Informal Risk-Sharing Among Women in Kenya: Guest post by Felipe Dizon

This is the second in our series of posts by students on the job market this year.
In 2013 alone, donors pledged $31 billion to support financial inclusion programs—an attempt to deliver financial services to the 2 billion adults that do not have access to such services. In the past, microcredit and insurance programs received all of the attention, but improving the savings capacity of the poor and unbanked has recently drawn increasing attention as well. Access to a savings account has been shown to improve account holders' overall financial situation and their ability to cope with shocks.  In addition, access to savings may also lead to greater educational aspirations and completion of additional years of schooling for the children of account holders.

How to more proactively disclose information in public-private partnership projects? Your input needed

Robert Hunja's picture

For too long, there has been a dearth of literature and guidance on policy and practice in public-private partnership (PPP) disclosure and a wide gap in understanding the mechanics of disclosure by practitioners within governments and the private sector. The just-released Framework for Disclosure in Public-Private Partnership Projects, a systematic structure for proactively disclosing information, fills this gap. Two additional documents, Jurisdictional Studies and Good Practice Cases, provide relevant background and resources, complementing the goals of the Framework.
Your input and PPP experience (locally, regionally and globally) are imperative to help us get this framework right. While the documents have been drafted, we are eager to incorporate feedback that will make them better. Please take a few minutes to read the documents and provide us with your input on this page to further refine this work.

No Money, No Worry

Maya Brahmam's picture

Rafu, the chief of the fishing villageThe World Bank recently completed two surveys that confirm that large global banks are restricting or terminating relationships with other financial institutions and that banking services for money-transfer operators have become increasingly limited.

The risk is that a decline in correspondent banking services can lead to financial exclusion, particularly for remittance providers – poor people working in richer countries who send money home to their families in poorer countries. To a large extent, these restrictions have come about because of worries about money laundering or financing for terrorism and less appetite for risk.

However, there are alternatives. Mobile money is a fast-growing alternative to traditional banks. CBS’s Lesley Stahl recently reported on how MPesa has transformed financial inclusion in Kenya, where people- many of them poor- do most of their financial transactions via cellphone and outside of traditional banking systems.  She also pointed out that tech giants like Google, Facebook, PayPal and Apple are all exploring this new consumer market, where sending money can be as simple as sending a text message. Also, according to the Financial Times, mobile money is making serious inroads in Latin America, where 37 mobile money services are now operational across 19 countries. Unlike the experience of Africa, Latin Americans are using mobile money to support urban middle-class lifestyles.

Climate change and Africa’s Infrastructure: Adapt now, but do so wisely

Raffaello Cervigni's picture
In less than a week, the leaders of more than 190 countries will meet in Paris to reach a new agreement to prevent the warming of the earth’s atmosphere from exceeding two degrees above pre-industrial times.
The issue of adaptation will feature more prominently than ever in the discussion. Agreeing to limit warming to two degrees means the negotiators recognize that certain degree of warming is unavoidable.  Countries need to adapt, and adequate resources are needed to help poorer countries make the transition.

How should countries go about adaptation? The answer is not an easy one. The technological solutions to reduce emissions are well known, but exactly how development decisions in response to anticipated climate change are most effectively made is a lot trickier.

A nice example of how government-to-government peer pressure can lead to innovation

Duncan Green's picture

John HammockGuest post from John Hammock of the Oxford Poverty & Human Development Initiative

In Duncan Green's thought-provoking blog ‘Hello SDGs, what’s your theory of change?’ he rightly identifies peer pressure as a potentially very effective means of governments coming to internalise the SDGs in their domestic processes and influencing others to follow suit. Let me give an instructive case study based on our experience at OPHI.

I think there is common ground that effective change must be owned by the implementers of change, not by donors or academics, not by consultants or think-tanks, not by well-wishers (or even bloggers).  Change happens in government when the change is owned and this happens when the policy maker sees how the policy will help both deal with the problem in real time and help the government in power.

Let’s take the case of multidimensional poverty and its measurement.  OPHI—an academic centre—developed at the end of 2008 the Alkire Foster method to measure multidimensional poverty, giving the world a practical tool to measure many deprivations that poor people face at the same time. Four years later, three ‘vanguard’ governments [to borrow Dunanc's phrase!], Mexico, Colombia and Bhutan, had adopted the measure but take-up elsewhere was painfully slow. Statisticians and geeks loved it, but governments were not following the starting three.