FDI Trends : Looking Beyond the Current Gloom in Developing Countries

Abstract

The fall in foreign direct investment (FDI) since 1999 and China's growing share, worry most developing countries. But an in-depth look reveals new and promising trends. The decline is largely a one-time adjustment following the privatization boom of the 1990s. FDI is coming from more countries - and going to more sectors. The conditions for attracting FDI vary by sector: in labor-intensive manufacturing, for example, efficient customs, and flexible labor markets are key, while in retail, access to land and equal enforcement of tax rules matter most. Sorting out the microeconomic issues by sector will be good, not only for FDI, but also for domestic investors.