OECD (UK & EU) Home Country Measures and FDI in Developing Countries: A Preliminary Analysis

Abstract

Many OECD governments employ home country measures (HCM's) to promote foreign direct investment to developing countries. These measures include support for risk reduction, technical assistance to improve the host country investment climate and home country market access. More research is needed on the effectiveness of HCM's but preliminary analysis of UK measures suggests that country specific investment related aid is useful in attracting FDI. The presumption is that FDI is good for development but that there are market and coordination failures which deter investment and cause the social benefits of FDI to be greater than the private benefits, in both host and investing countries. Since various agencies are involved in providing HCMs, one stop shops for outward investors could be considered to reduce potential confusion among investors.