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Prof. Patrizia Tiberi Vipraio ∗
HOW TO ENHANCE POSITIVE SPILL-OVER EFFECTS OF
FOREIGN INVESTMENTS IN ‘TRANSITION ECONOMIES’:
A NEW CHALLENGE FOR DEVELOPMENTAL STATES
Abstract: The purpose of this paper is to discuss how to enhance the positive spillover
effects of foreign investments in ‘transition economies’ by focusing on the role of the
State and on the scope for an appropriate policy-mix, in a ‘context based’ process of
reforms. A comparison between the optimal sequence of foreign capital liberalization and
the problems of its practical implementation in ‘transition economies’ does not provide a
definite answer to what precise mix of institutional reforms, and what sequence of
measures, are best suited for promoting domestic growth. To this purpose, the paper
suggests a reconsideration of the ‘quality’ of the State that is necessary to promote
industrial development, by taking the East Asian rapid development as a point of reference.
Key words: Foreign investments, Developmental States, Transition economies,
Development policies
Introduction
Since globalization began, a vast discussion took place on how countries
could benefit from foreign investments, in the form of finance, portfolio and direct
investments. In ‘transition economies’ more efficiency was expected, by foreign
investments, for lack of domestic capital (and savings) to begin with. Growth
would soon follow, once adjustments to correct for previous imbalance was granted
for. To help the process to speed up, and avoid too painful adjustments, a number
of liberalization policies were suggested. In particular, an optimal sequence of
measures was recommended. The purpose of this paper is to discuss how to
enhance the positive spill-over effects of foreign investments in ‘transition
economies’ by focusing on the role of the State and on the scope for an appropriate
policy-mix, in a ‘context based’ process of reforms. A comparison between the
optimal sequence of foreign capital liberalization and the problems of its practical
implementation in ‘transition economies’ does not provide a definite answer to
what precise mix of institutional reforms, and what sequence of measures, are best
suited for promoting domestic growth. To this purpose, the paper suggests a
reconsideration of the ‘quality’ of the State that is necessary to promote industrial
development, by taking the East Asian rapid development as a point of reference.
∗ Full Professor of Economic Policy, Department of Economics, University of Udine, Via Tomadini,
30/A, 33100 Udine, Italy, phone: +39 0432 249218, fax: +39 0432 24992, email:
patrizia.tiberi@uniud.it
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