Putting it to Work in Developing Countries - Nathan Associates

countries through mergers and acquisitions, this
type of FDI is small but growing in developing
countries.
RANKING FDI MOTIVATIONS
Data on FDI inflows are not normally recorded
by business purpose. But given certain assumptions
about the nature of various industries and
their likely attraction for FDI, the relative
importance of investor motives can be estimated
on the basis of UNCTAD’s figures on FDI
inward stock by sector and industry. 8 Though
rough, these estimates suggest that market-seeking
may still be the dominant motive, accounting
for nearly half of all FDI inward stock.
Efficiency-seeking FDI is probably the next
most important, followed by FDI for resourceseeking
purposes. This ranking, however, seems
to be evolving: between 1990 and 2004, efficiency-seeking
FDI appeared to gain significantly
in its share of total developing country FDI
stock, while marketing-seeking FDI lost a like
amount (Figure 2-1). Resource-seeking FDI
probably amounts to about 8 percent of the
total accumulated stock of FDI in the developing
world. With sustained global economic
expansion—and especially rapid growth in
China and India—generating increased demand
for energy and raw materials, the resource-seeking
share in total FDI could rise somewhat.
THE DEVELOPMENT CASE
Policymakers in developing countries are well
aware that FDI represents only a fraction of
total annual investment in the developing world,
as noted earlier. For example, for the five-year
period 2001 through 2005, FDI accounted for
just 12 percent of all investment in developing
countries and less than 3 percent of their combined
GDP (Table 2-1). While these ratios vary
by region—in Africa, Europe and Central Asia,
and Latin America FDI has been a relatively
larger factor in total investment—it is clear that
FDI can only be regarded as supplement to
domestic investment.
Nevertheless, for developing countries, the reasons
for hosting FDI remain compelling: FDI
Table 2-1
Total Gross Fixed Capital Formation and FDI Relative to Gross Domestic Product,
All Developing Countries, 2001-2005 (US$ million)
GFCF FDI Domestic Investment
Region
Developing countries
East Asia and Pacific
Europe and Central Asia
Latin America and Caribbean
Middle East and North Africa
South Asia
Sub-Saharan Africa
GDP Total % GDP Total %GDP %GFCF Total %GDP %GFCF
37,022,204 8,976,289 24.2 1,034,754 2.8 11.5 7,941,535 21.5 88.5
10,819,705 3,797,367 35.1 332,736 3.1 8.8 3,464,631 32.0 91.2
7,525,011 1,517,429 20.2 254,688 3.4 16.8 1,262,804 16.8 83.2
9,929,964 1,846,781 18.6 294,476 3.0 15.9 1,552,305 15.6 84.1
2,601,941 569,365 21.9 44,383 1.7 7.8 524,982 20.2 92.2
3,913,563 879,313 22.5 36,193 0.9 4.1 843,120 21.5 95.9
2,232,020 365,971 16.4 72,278 3.2 19.7 293,693 13.2 80.3
Note: Includes data only on economies classified as low or middle income by the World Bank (2005) per capita GNI of $10.725
or less). Data from 2004 includes countries of South-East Europe and the Commonwealth of Independent States.
SOURCES: FDI inflows, GFCF and GDP data from UNCTAD, World Investment Report 2006. World Bank, World Development
Report 2007 for country classifications.
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