(EGM) Foreign Direct Investment in Southeast Asia - Unido

and viii) general foreign investor confidence 8 . Simultaneously, policy
discretion has been diminished by the rules-based approach. In terms of
competitive industrial performance, the policy factors (and variables) reflect
industrial capacity and complexity 9 . In terms of taxation, the pertinent
factors and variables of investment promotion cover direct taxes (such as
personal and corporate income taxes) and indirect fiscal measures (such
consumption and transaction taxes).
Although the priorities of governments and the objectives of MNEs tend to
differ, their interaction is of fundamental importance to economic growth and
technological development. Governments are primarily concerned with
increasing welfare functions within the national economy, for the benefit of
their citizens. MNEs are primarily concerned with maximising the long-term
value of the firm, for the benefit of shareholders (who may or may not be
citizens in the same country as the FDI project). These respective duties do
not always coincide or converge. Indeed, they can be highly co-operative
and/or conflicting. The issue of policy craft for FDI is therefore increasingly
crucial to the economic well-being of developing countries. Therefore,
economic policies intended to attract, promote and enhance inward FDI are
essential tools that need to be brought into the armoury of the policy-making
community. Further, investment policy should be aligned with a host
country’s industrial policy, as well as with its wider development goals
[UNIDO (2005)].
The governments of developing countries choose policy instruments --
generalised as incentives 10 -- to attract FDI activity, and different dimensions
of incentives can be depicted. Firstly, incentives can be either general or
specific (with a discretionary perspective).
7 Trade policy, fiscal burden of government, government intervention in economy, monetary policy, FDI
and FPI, banking and finance, wages and prices, property rights.
8 Propensity of firms to undertake FDI in a particular location.
9 A country’s Industrial Capability Profile, comprises: manufacturing value-added (MVA) per capita in
conjunction with manufactured exports per capita; and share of medium- and high-technology (MHT) in
MVA in conjunction with share of MHT in exports. The first pair of indices indicates industrial capacity
and competitiveness, whereas the second pair connotes industrial depth and complexity. See UNIDO
2002/2003 Industrial Development Report, Competitive Industrial Performance Index.
10 Not to be confused with the special category of fiscal or financial incentives.
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