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Privatization and foreign investment in the developing world, 1988-92

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  • Sader, Frank

Abstract

Foreign direct investment in the developing world has grown rapidly in recent years, making it one of the most important sources of financing to developing countries. The author presents a database on about 1,100 global privatization transactions from 1988 through 1992. Between 1988 and 1992, developing country governments earned almost US$62 billion in revenues from the sale of state-owned assets. About a third of those revenues came from foreign sources. Privatization in Latin America represents about 66 percent of privatization in the developing world. Privatization in Europe, including Eastern Europe, accounts for 17 percent, and privatization in East Asia, 13 percent. The heaviest foreign participation is in Eastern Europe, primarily for lack of domestic financing. Foreign investors'general participation in privatization programs was strong, providing developing countries with substantial amounts offoreign exchange. The relative size of the privatization program and the degree of openness to foreigners are important determinants of foreign direct investment. Each dollar in privatization revenue generates an additional 35 cents in new foreign direct investment inflows, and a 1 percent increase in foreign participation adds another 50 cents. In addition to the direct inflow of funds through the sale of assets, many developing countries also increasingly attracted foreign investment outside of their privatization programs. Privatization of infrastructure and the financial sector especially seem to have sent important signals to foreign investors, indicating an improved economic environment and possibly the eventual elimination of bottlenecks. Improved expectations about the profitability of investment projects render these countries more attractive to foreign investors.

Suggested Citation

  • Sader, Frank, 1993. "Privatization and foreign investment in the developing world, 1988-92," Policy Research Working Paper Series 1202, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1202
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    References listed on IDEAS

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    1. Dennis D. Miller, 1990. "Perspective," Challenge, Taylor & Francis Journals, vol. 33(3), pages 58-61, May.
    2. Gooptu, Sudarshan, 1993. "Portfolio investment flows to emerging markets," Policy Research Working Paper Series 1117, The World Bank.
    3. Nankani, H., 1988. "Techniques Of Privatization Of State-Owned Enterprises - Volume 2: Selected Country Case Studies," Papers 89, World Bank - Technical Papers.
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    Cited by:

    1. Shah, Mumtaz Hussain & Khan, Faisal, 2019. "Telecommunication Infrastructure Development and FDI into Asian Developing Nations," MPRA Paper 107255, University Library of Munich, Germany.
    2. Andrea Amaro & William Miles, 2006. "Racing to the bottom for FDI? The changing role of labor costs and infrastructure," Journal of Developing Areas, Tennessee State University, College of Business, vol. 40(1), pages 1-14, September.
    3. Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.
    4. Perotti, Enrico C. & van Oijen, Pieter, 2001. "Privatization, political risk and stock market development in emerging economies," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 43-69, February.
    5. Omer Ali Ibrahim & Sufian Eltayeb Mohamed Abdel-Gadir, 2015. "Motives and Determinants of FDI: A VECM Analysis for Oman," Global Business Review, International Management Institute, vol. 16(6), pages 936-946, December.
    6. Cabeza Garcia, Laura & Gomez Anson, Silvia, 2007. "The Spanish privatisation process: Implications on the performance of divested firms," International Review of Financial Analysis, Elsevier, vol. 16(4), pages 390-409.
    7. Chen, Guo, 2013. "Health costs, factor productivity and foreign direct investment flows," Master's Theses and Plan B Papers 157717, University of Minnesota, Department of Applied Economics.
    8. Perotti, Enrico C & van Oijen, Pieter, 1999. "Privatization, Political Risk and Stock Market Development," CEPR Discussion Papers 2243, C.E.P.R. Discussion Papers.

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