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Developing countries and MNEs: extending and enriching the research agenda

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Abstract

Foreign direct investment (FDI) through multinational enterprises (MNEs) has emerged in the last decade as the principal source of foreign capital for developing countries. Meyer (this issue) underlines the need for international business (IB) scholars to understand the impact of these investments on host developing countries. He offers a useful assessment of the literature and proposes a rich set of questions for further research. However, his research agenda can be extended and enriched in two ways. First, IB scholars must study, as they always have, causation in the opposite direction—namely, the impact of developing country context on MNE behavior and the co–evolution of these two variables over time. In doing so, they must incorporate into their models contemporary issues, such as the continued inadequacy of rules for FDI in infrastructure sectors, or the clever means by which MNEs are rewriting the global rules under which they operate in developing countries (e.g., on intellectual property rights). Second, IB scholars must pay more attention to topics that are not mainstream within the field but are of great importance to developing countries. Examples include the behavior and performance of a new generation of home-grown MNEs, the role of diaspora in homeland FDI (in countries like China and India), and the implications of global outsourcing of services.

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Figure 1

Notes

  1. FDI stock in developing countries grew from $307 billion in 1980, to $551 billion in 1990, and to $2340 billion in 2002, according to UNCTAD (2003: Annex Table B.3, 257). In 2002, the FDI stock in Africa (traditionally a laggard in receiving FDI) stood at $171 billion, which was higher than the FDI stock in Latin America (traditionally a major destination for FDI) in 1990. (Figures are not inflation adjusted, but nevertheless illustrate the extent of FDI growth in the 1990s.)

  2. Between 1975–1982 and 1990–1998, the share of FDI in aggregate net flows of capital to developing countries rose from 9 to 34%, whereas official flows (bilateral and multilateral) fell from 32 to 20%, and private bank loans fell from 50 to 24%. Thus, in the 1990s, FDI became the single largest source of foreign net capital flows to developing countries (Akyuz and Cornford, 1999, 8).

  3. Vernon (1998: 108) wrote: ‘Much as they [emerging economies] may welcome the contributions of foreign-owned enterprises in their jurisdictions, I anticipate that these countries will have grave doubts from time to time about the long-term contributions of such enterprises, especially as they observe that the grand strategy of the enterprise is built upon the pursuit of global sources and global markets. Aware that they cannot cut themselves off from the global economy except at great cost, such countries nevertheless are likely to resort to restrictive measures from time to time that seem necessary to satisfy their internal political needs. And measures of that kind can easily prove costly both to the initiating country and to the enterprises that are the targets of their actions.’

  4. This issue was central to IB in the 1970s but thereafter took backstage (e.g., Vernon, 1971, 1977; Lall and Streeten, 1977).

  5. In 2002, for instance, 10 developing countries received 79% of the total FDI inflows to all developing countries (UNCTAD, 2003).

  6. The value of studying how MNEs and host countries impact on each other over a period of time is illustrated by Vernon's influential ‘obsolescing bargain’ theory.

  7. The experience in Latin America is striking: fully 70% of all infrastructure concession agreements in that region in the 1990s were renegotiated within three years of signing, with a 90% renegotiation rate for water concessions, according to Guasch et al. (2002).

  8. In the absence of a single multilateral agreement on FDI, similar to that for international trade, a hodge-podge of arrangements has emerged, consisting of MNE codes of conduct, voluntary standards, bilateral investment treaties, assorted regional agreements, and piecemeal coverage of FDI issues through multilateral institutions meant for other purposes, such as the WTO, IMF, and World Bank.

  9. This point is elaborated in Ramamurti (2001) and emerges as a central theme in the UNCTAD (2003) issue of the World Investment Report, which has a whole chapter on ‘The importance of national policy space’ (Chapter V).

  10. For a pessimistic view of state-owned MNEs in China, see Economist (2004a). On the Slim group, see Economist (2004b).

  11. For one example of a good start in this area, see Khanna and Palepu (2002).

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Authors and Affiliations

  1. College of Business Administration, Northeastern University, Boston, USA

    Ravi Ramamurti

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  1. Ravi Ramamurti
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Correspondence to Ravi Ramamurti.

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Accepted by Arie Lewin, Editor in Chief, 2004. This paper has been with the author for one revision.

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Ramamurti, R. Developing countries and MNEs: extending and enriching the research agenda. J Int Bus Stud 35, 277–283 (2004). https://doi.org/10.1057/palgrave.jibs.8400087

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