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06-01 "The Missing Links between Foreign Investment and Development: Lessons from Costa Rica and Mexico"

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  • Eva A. Paus
  • Kevin P. Gallagher

Abstract

A developing country will derive long-lasting development benefits from FDI only, if there is the right coincidence between its location-specific assets and TNCs’ global interests, and the right match between the country’s national linkage capability and TNCs’ strategic interest in domestic sourcing. We argue that Costa Rica and Mexico have been very successful in attracting high-tech FDI due to the cumulative results of past development policies, proximity to the U.S., and trade arrangements. However, a combination of pervasive market failures, government inaction, and changes in TNC strategies explains why the two countries have not been able to reap lasting benefits from high-tech FDI. We conclude that pro-active government policies have to be an integral part of any FDI-linked development strategy. Pro-action is needed to attract FDI, to promote indigenous linkage capability, and to enhance key location-specific assets on an on-going basis in the context of a coordinated policy framework.

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Paper provided by GDAE, Tufts University in its series GDAE Working Papers with number 06-01.

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Handle: RePEc:dae:daepap:06-01

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  1. Krugman, Paul & Venables, Anthony J., 1993. "Integration, Specialization and Adjustment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 886, C.E.P.R. Discussion Papers.
  2. James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
  3. Blomström, Magnus & Globerman, Steve & Kokko, Ari, 2000. "The Determinants of Host Country Spillovers from Foreign Direct Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2350, C.E.P.R. Discussion Papers.
  4. Alice H. Amsden & Wan-wen Chu, 2003. "Beyond Late Development: Taiwan's Upgrading Policies," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011980, December.
  5. Kevin P. Gallagher & Francisco Aguayo & Ana Citlalic González, . "01-07 "Dirt is in the Eye of the Beholder: The World Bank Air Pollution Intensities for Mexico"," GDAE Working Papers, GDAE, Tufts University 01-07, GDAE, Tufts University.
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