Putting it to Work in Developing Countries - Nathan Associates

Table 4-2
Estimated Developing Country Shares of World Inward FDI Stock, by Sector, 1990 and 2004
Developed Countries Developing Countries Change in Developing
Sector 1990(%) 2004(%) 1990(%) 2004(%) Countries’ Shares
Primary 85.5 60.9 14.5 39.1 24.6
Manufacturing 80.2 79.1 19.8 20.9 1.1
Services 82.5 78.6 17.5 21.4 3.9
Other/Unspecified 70.3 47.6 29.7 52.4 22.7
Total 81.8 77.6 18.2 22.4 4.2
Note: Includes countries classified as “developing” by UNCTAD. UNCTAD classifies some countries as developing that
the World Bank considers “high income,” such as Singapore and South Korea, and classifies some as developed that the
World Bank considers “low and middle income,” such as Estonia, the Czech Republic, and Hungary. Data for the countries
in UNCTAD’s “South-East Europe and the Commonwealth of Independent States” category are included in the developing
country totals for 2004, but data for these countries are not available by sector and industry for 1990.
SOURCE: Nathan Associates, based on UNCTAD, World Investment Report 2006, Annex Table A.1.2.
manufacturing industries while gaining in others.
This underlines the fact that developing
countries do not have an across-the-board competitive
advantage in attracting FDI to manufacturing—despite
their supplies of low-cost labor.
Expanding opportunities in services industries.
Between 1990 and 2004, the absolute value of
developing countries’ inward FDI stock in services
skyrocketed by well over 700 percent, from
$152 billion to nearly $1.3 trillion. And in four
of seven major services industries that UNC­
TAD monitors, developing countries have
increased their share of world inward FDI stock
during this period. This means that the rate of
increase in FDI flows to the developing world in
these services has outstripped that of the developed
countries. These gains in share of world
FDI stock have occurred in construction, retail
and wholesale trade, hotels and restaurants, and
especially in business services. 2 In some other
industries, developing countries increased the
value of their inward FDI stock, but still lost
shares of world FDI stock: power, gas and water;
transport, storage and communications; and
finance (banking and insurance services). This
suggests that “older” service industries are more
attractive in the developed than in the developing
economies—at least for now, pending
China’s continuing liberalization of a broad
range of industries and markets.
Appeal of Eastern and Central Europe. The
emergence of industries in some former socialist
countries as possible investment destinations has
reshuffled global FDI inflows somewhat. Recent
data for Eastern and Central Europe show that
these transition economies—largely absent from
world FDI flows in the pre-1990 socialist era—
have become appealing destinations for FDI in
certain manufacturing industries. Among these
are food, beverages and tobacco; wood and
wood products; chemicals and chemical products;
rubber and plastics; automobiles and transport
equipment; electronics and electronic
equipment. The power of this appeal is underscored
by a cross-border automotive industry
cluster that comprises 13 automobile plants, 10
power train factories, and hundreds of suppliers
in a 500-km circle encompassing parts of the
Czech Republic, Hungary, Poland, Slovakia, and
Slovenia. 3 Since the fall of the Berlin Wall, these
transition economies have also attracted FDI in
textiles, clothing and leather, machinery and
equipment, and a host of services, including
utilities, construction, and transport, storage,
and communications.
All the shifts in the composition of FDI stocks
just described may denote “level shifts”—permanent
changes in the industry patterns of FDI
that the developing world most readily attracts.
What then are the broad implications of these
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