Putting it to Work in Developing Countries - Nathan Associates

contributes directly to economic growth while
also appearing to reinforce and accelerate economic
development in ways that can transform
an economy more quickly or dramatically than
domestic investment alone.
ECONOMIC GROWTH
Developing countries see FDI as a growthinducing
flow of financial resources. In this version
of the traditional investment–growth paradigm,
the effect of FDI in the host economy is
little different than that of domestic investment.
The presumption is that FDI adds to domestic
savings and raises rates of capital accumulation
in both physical and human resource assets. In
competitive environments, high-quality FDI
projects elevate the rate of return to investment
in the economy as a whole. These projects lead
to new employment and wages and this in turn
creates more jobs and income in progressively
wider circles of the economy. The result is
increased economic growth.
Empirical tests of the relationship between FDI,
capital accumulation, and economic growth are
encouraging, if not uniform. It appears, first of
all, that FDI has a positive effect on capital formation;
increases in FDI generally lead to
increases in aggregate domestic investment. 9 By
stimulating complementary activity FDI projects
may actually “crowd in” rather than “crowd out”
domestic investment, as some have feared. 10
Recent World Bank research emphasizes this
finding: controlling for trade openness and level
of financial development, analysts conclude that
private capital flows—of which FDI now on
average accounts for 57 percent —have “a positive
and significant impact on (domestic) investment.”
11 But these effects depend heavily on
The Impact of Coca-Cola in China
Since reentering the Chinese market in cent of all production inputs in China.
1979, Coca-Cola has become a major for- To be a Coca-Cola supplier is a “stamp of
eign investor there. By 2000, it was running approval” and generates additional business.
28 bottling plants, calling for capital invest- And because the firm’s business involves a
ments and direct operating expenditures complex web of retailers, wholesalers, and
(excluding labor costs) of more than $1.1 vendors, it has transmitted competitive busibillion,
wage and salary payments of $100 ness practices to a new generation of entremillion,
and a workforce of 14,000. Its preneurs. In transforming its bottling plants
operations gave rise to 350,000 jobs among from backward, inefficient state-owned
suppliers and 50,000 jobs among independ- enterprises into successful joint ventures, it
ent wholesalers and retailers. By injecting restructured enterprises, introduced manage­
$1.1 billion into the economy it generated ment accountability and worker incentives,
another $2.6 billion in further rounds of and created a firm-wide market-sensitive
expenditure. More important is the firm’s culture. Coca-Cola trained its workforce,
effect on development. It revolutionized retailers, and wholesalers in marketing and
supply linkages by working with suppliers to other skills. Its Soft Drink Training Center
upgrade their offerings. Glass bottles once at Tianjin now provides training in business
imported from Korea are now produced by and technical subjects for employees and for
local firms trained by Coca-Cola’s glass tech- private sector and government managers
nologists. The firm now purchases 98 per- from all over China.
SOURCE: Economic Impact of the Coca-Cola System on China, Peking University, Tsinghua
University and University of South Carolina. August 2000.
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