Putting it to Work in Developing Countries - Nathan Associates

4. Some FDI already flows to every part of
the world, but it is not evenly distributed.
China’s overwhelming appeal, India’s
potentially huge appeal, and the end of
the Multifibre Arrangement of global
quotas that long diverted FDI to poorer
developing countries may all exacerbate
this unevenness. All countries, but
especially those in sub-Saharan Africa and
Middle East/North Africa, need to look
carefully at what attracts FDI to their
economies—and what repels it.
5. The sectoral destinations of FDI flows in
the developing world have changed
definitively. Though no longer ascendant, 6.
the manufacturing-related FDI that
dominated the 1980s and early 1990s is
still important. The rise of the “global
factory” will continue to generate
efficiency-seeking FDI opportunities to
manufacture parts and components for
international production networks, but
services-related FDI now accounts for
most inflows, and will continue to do so.
Most services-related FDI is still marketseeking,
particularly investment in public
utilities or finance, and these sectors still
present vast possibilities. But, at the same
time, efficiency-seeking activities such as
export-oriented business support services
are the fastest growing segment, and this
expansion will accelerate.
The attributes that attract FDI to a host
country are well-known and straightforward.
They begin with a set of economiccommercial
factors that characterize any
Foreign Direct Investment and the Costa Rica Brand
How did Costa Rica become the top desti- and sociopolitical advantages. This brand
nation for FDI in Central America In the has proved compelling to foreign investors
1970s and 1980s, when much of the region such as Intel and Procter & Gamble. Intel
was coming to grips with the limitations of located a $300 million semiconductor
the import-substitution development assembly production center in Costa Rica,
model, Costa Rica was diversifying its after considering Brazil, Chile, and Mexico;
export base and attracting U.S. investment. and Procter & Gamble established a shared
Like many developing countries, it used free services operation there. Asked “why Costa
trade zones (FTZ), a system established in Rica” foreign investors cite the country’s
the 1980s and based around industrial relatively cheap and trainable workers—a
parks. A favorable investment climate key aspect of the brand—as well as political
helped the zones to flourish. In 1984, Costa and social stability, preferential access and
Rica gained preferential access to U.S. mar- time-zone proximity to the United States,
kets when it ratified the Caribbean Basin and export-oriented infrastructure. CINDE
Trade Partnership Act. It also ratified several has vigorously promoted inward FDI in key
bilateral investment treaties and provided sectors—high technology (e.g., electronics,
other investor incentives. The Costa Rican medical devices), services (e.g., shared serv-
Investment Board (CINDE), a private non- ices, call centers), and tourism. Throughout
profit organization founded in 1982, has the 1990s, inward FDI grew impressively,
done much to boost the amount and quali- peaking at $620 million in 1999, laying the
ty of efficiency-seeking FDI entering the foundation for Costa Rica’s development
country. In “branding” Costa Rica it has success to date. In 2002, FDI was $642
drawn on the country’s location, labor, million.
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