GRM 2010 GRM 2011

Abstract Details

Family Name:
Al Balushi
First Name:
Title of Paper:
Lessons from Latin America experiences in managing Foreign Direct Investment to enhance the domestic Private Sector
Paper Proposal Text :
Foreign Direct Investment (FDI) has grown substantially worldwide over the last two decades and with the help of Globalization, making it the engine of growth and development (Petrohilos, 1989; P.2). This is due to variety of possible channels for spillover benefits, that might boost economic performance in the host economy, which include imitation, skills acquisition, competition and exports (Gorg and Greenway; P173). In addition, FDI has grows to be one of the most important strategies for enhancement of the private sector in the host economy through the international operations of multinational corporations (MNC) . However, this is not always an easy task, as MNCs will not simply hand over the source of their advantage (Cohen, 2006; PP11-15).
A significant volume of literature has been developed that deals with FDI from different perspectives, the investor perspective, home and host economy perspective and global prospective (Cohen, 2006;P11). This paper will focus on the interaction between FDI and the domestic private sector and try to draw few lessons for Gulf Corporation Council GCC countries from Latin America countries.
The empirical literature on the relationship between Foreign Direct Investment and the private sector in the host economy offers mixed conclusions. Using the Eclectic Paradigm (OLI) theory by Dunning (1993), Vernon’s the product life cycle (PLC) theory and new growth theory can explain a theoretical link between them. They all argue that FDI has an influence in the local private sector. However, the direction of the influence is not certain. According to Cave, (1982) and Dunning (1993) views, inward FDI has had positive impact on the local private sector and strengthened domestic enterprises, through efficiency spillovers to local firms (Peter, Buckley, Chengqi, Jeremy; P.142), capital accumulation, transfer of know-how, skills and best practices and job creation (Chen and Ku, 2005; P.109), generate of technological capacity building and open export markets which all provide arrangements that increase the potential of host economy. In contrast, some theorists (e.g Veron, 1971 and Jenkins, 1987) predict that MNCs may intensify competition and dominate the market resulting in crowding out small and medium domestic enterprises (SME) and have a negative impact on economic development (De Backer and Sleuwaegen, 2003; P. 67). Some others including Lipesy, (2002) suggest that positive impact will be only under certain local policy conditions (Lipesy, 2002; PP.40-47) and absorption capacity (World investment report, United Nations, 2006).

This paper will drawa few lessons from Latin America experiences related to the role of FDI as an avenue to enhance the role of the private sector in the GCC countries. In order to achieve the research aims and objectives, the paper is designed to include three parts: The first part is an introduction which will focus on FDI and private sector theoretical analysis, it will provide theoretical foundation and cover some historical aspects on FDI and private sector interactions. It will also provide a review of major work done on this topic and will investigate theories in the literature and their relation with the FDI and private sector of an oil producing economy somewhat similar in structure to the GCC countries. The second part of the paper discusses Latin America experiences related to use of FDI to enhance the role of private sector in the development process and the main lessons for the GCC countries. The third part provides some concluding remarks as well as recommendations that would enhance the role played by foreign direct investment in the development of the GCC private sector.