In This Review

Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition
Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition
By Theodore H. Moran
Institute for International Economics, 1998, 191 pp.

A careful and nonideological examination of foreign direct investment's role in developing economies and those making the transition from communism to market reforms. As Moran observes, these economies have increasingly sought FDI not only by liberalizing investment restrictions but by offering tax and cash enticements. In their misguided attempts to assure technology transfer, however, these measures often require joint ventures, licensing requirements, or minimum local content and export requirements. For their part, rich countries discourage FDI through their own stiff rules of origin in trade agreements and grossly unfair antidumping practices. Moran convincingly argues that FDI can and usually does make important economic contributions to developing countries but notes that it can also leave the host country worse off -- especially if its domestic economy discourages competition. Despite the recent failure of the Multilateral Agreement on Investment, he believes that a multilateral pact on FDI would be useful and boldly suggests that developing countries take the diplomatic initiative to reduce the distortions in FDI flows that hurt all countries. Unfortunately, Moran probably underestimates the power of the myths and superstitions that still surround fdi in home and host countries alike.