Putting it to Work in Developing Countries - Nathan Associates

eported to be a source of FDI throughout the
former Soviet Union, particularly in natural
resources. 25
FUTURE BENEFITS
If economic conditions remain stable and liberalization
of trade and investment advances, flows
of South–South FDI will likely expand significantly
over the next decade. Competition and
rising costs in the South’s larger home
economies, new regional and global opportunities,
and the need for oil and other resources will
drive these flows. South–South FDI can have a
strategic role in the developing world for several
reasons. First, South–South flows may have a
better effect on production capacity and
employment generation than other FDI: South
multinationals tend to adopt a greenfield
approach to FDI more often than developed
country counterparts, and are more oriented to
labor-intensive industries. 26
Second, foreign investors based in developing
countries may be better equipped to operate in
and bear the risk of other emerging country
markets, thus multiplying the potential sources
of FDI for the developing world. Analysis suggests
that the South’s multinationals are more
willing to focus on smaller or poorer markets
than multinationals from the North (e.g., China
and Russia in Mongolia, or India and Turkey in
Bangladesh).
Finally, developing country multinationals often
have an advantage in developing economies,
since their products and processes are often better
adapted to local economic and technological
conditions. And spillovers are more likely, since
the technological gap between these multinationals
and host economies is narrower than that
between developed country multinationals and
these host economies. All of these factors should
encourage and intensify South–South FDI
flows. 27
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