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The Missing Links between Foreign Investment and Development: Lessons from Costa Rica and Mexico

Author

Listed:
  • Paus, Eva A.
  • Gallagher, Kevin P.

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.

Suggested Citation

  • Paus, Eva A. & Gallagher, Kevin P., 2006. "The Missing Links between Foreign Investment and Development: Lessons from Costa Rica and Mexico," Working Papers 37156, Tufts University, Global Development and Environment Institute.
    • Handle: RePEc:ags:tugdwp:37156
    DOI: 10.22004/ag.econ.37156
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    References listed on IDEAS

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    Cited by:

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    2. Roberto Porzecanski & Kevin P. Gallagher, 2007. "Economic reform and foreign direct investment in Latin America," Progress in Development Studies, , vol. 7(3), pages 217-233, July.
    3. Ackerman, Frank & Stanton, Elizabeth A., 2006. "Can Climate Change Save Lives? A comment on “Economy-wide estimates of the implications of climate change: Human health"," Working Papers 37240, Tufts University, Global Development and Environment Institute.
    4. Andreas Waldkirch & Peter Nunnenkamp & Jose Eduardo Alatorre Bremont, 2009. "Employment Effects of FDI in Mexico's Non-Maquiladora Manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 45(7), pages 1165-1183, August.
    5. Nunnenkamp, Peter & Bremont, José Eduardo Alatorre, 2007. "FDI in Mexico: An empirical assessment of employment effects," Kiel Working Papers 1328, Kiel Institute for the World Economy (IfW Kiel).
    6. Julie A. Nelson, "undated". "Ethics and International Debt: A View from Feminist Economics," GDAE Working Papers 06-04, GDAE, Tufts University.

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