Discussion Paper

No. 2018-2 | January 09, 2018
Attracting FDI in middle-skilled supply chains
(Submitted as Global Solutions Paper)

Abstract

While popular opinion often pictures FDI flowing in search of lowest-wage, lowest-skilled activities in emerging markets, actual FDI to such countries increasingly addresses medium to high-skilled manufacturing sectors. Such FDI might be called “Quality FDI” that contributes to the creation of decent and value-adding jobs, enhancing the skill base of host economies, facilitating transfer of technology, knowledge and know-how, boosting competitiveness of domestic firms and enabling their access to world-wide markets, as well as operating in a socially and environmentally responsible manner. To attract such quality FDI, host countries need mindfully tailored policies. Recent research offers evidence for strategies in developing countries that successfully turned FDI into such quality FDI.

JEL Classification:

F14, F16, O24, O25

Assessment

  • Downloads: 443

Links

Cite As

Theodore Moran, Holger Görg, Adnan Serič, and Christiane Krieger-Boden (2018). Attracting FDI in middle-skilled supply chains. Economics Discussion Papers, No 2018-2, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2018-2


Comments and Questions


Anonymous - Comments
January 29, 2018 - 11:11

Based on empirical evidence from the literature, the paper provides suggestions for policy actions aiming at the attraction of “quality FDI”. In particular, the authors address “quality FDI” in “middle-skilled” manufacturing industries.

The suggested policy actions are intuitive and clearly presented in a simple and compact way. However, there ...[more]

... are some shortcomings from my point of view.
1.) The authors leave out a discussion which policy actions are seen as the most important ones. That is, it is not clear at the end which of the stated policies are supposed to have the largest impact in attracting “quality FDI”. Moreover, it is not clear whether the sequence of the policy actions plays a role. Is it important to start with a few (essential) policy actions and then continue with the others subsequently, or should all relevant policies implemented (more or less) at the same time?
2.) The term “middle-skilled supply chains” in the title is not fully clear to me. Numerous examples of supply chains in manufacturing segmented across countries are characterized by the fact that different production stages employ labor with different skill levels. Thus, in the same supply chain low-, middle- and high-skilled labor may be employed. Finally, as I understand the paper, shouldn’t the title rather be something like: “Attracting FDI in middle-skilled manufacturing sectors”?
3.) In general, the paper is vague in terms of “middle-skilled” and “high-skilled”. This does not impair the understanding of the paper. However, a clear definition is needed to make the motivation (i.e. Figure 1) more convincing. What is actually behind FDI in “higher-skilled sectors”?
4.) A minor issue is related to the second paragraph in the section “Overview”. To which aspect is the expression “such particular kinds of policy challenges“ linked. It seems like it is related to the policy challenges mentioned in the abstract. However, this is not clear for the reader.

A final comment: The authors mention the interesting aspect of “the understudied field of foreign investment in service industries” which is clearly beyond the scope of the paper. However, observing that in some developing countries FDI in services plays a huge role, there is need for future research, e.g. to investigate how policies should be organized to attract “quality FDI” in services.


Theodore Moran, Holger Görg, Adnan Serič, and Christiane Krieger-Boden - Response to comment
April 19, 2018 - 12:12

see attached file


Anonymous - Referee report
March 08, 2018 - 14:02

The issue that this paper addresses – promotion of quality FDI – is of great relevance. The paper is written in a non-technical language which is appropriate for the main target groups of the Global Solutions Paper Series. Furthermore, the authors make a number of important suggestions how host countries ...[more]

... can promote quality FDI.

I would like to make a couple of suggestions how the argument of the paper can be further improved:

1) Focus of the paper: In the abstract the authors put an emphasis on attracting quality FDI. On p. 2 the authors state that they are interested in the question under what conditions the quality of FDI can be enhanced. Given the fact that policy recommendations might differ depending on whether the focus is on attracting quality FDI (better market access, protection of IPRs, improved infrastructure etc.) or on improving the contribution of FDI to the development of the host country (education, training, matching programmes etc.) I would suggest that the authors make clear what the specific focus of the paper should be.

2) Framing: the paper starts with a classification of different types of FDI. I would suggest to include information about the classification of FDI types and their pros and cons in a separate text box. Instead, I would suggest to write the first paragraphs in a way that it attracts the attention of policy makers in FDI host countries (I guess this is the main target group). Why are your suggestions of relevance for a policy maker hoping to attract quality FDI? Why do you write this paper now? What is new and surprising? Also, a bit more framing might be useful. Why not link this paper to broader policy discussions about the 2030 Agenda for Sustainable Development or the Addis Ababa Action Agenda (AAAA)?

3) Policy suggestions: You provide a list of 13 suggestions (and three notes of caution and three suggestions for external actors). This is a lot! They range from very general suggestions (open up markets) to rather specific ones (set up vendor development programmes). From my perspective, this list is too long and unprioritized to be of use for policy makers. I see different options to deal with this: cluster the suggestions into broader sets of interventions, or priorities (what should be done first? What are general suggestions? What is needed to specifically promote quality FDI?), or who should do what? Furthermore, I am missing a focus on improving the institutions of the home states that are needed to implement many of the reforms you suggest (this publication might be useful in this respect: https://www.cambridge.org/core/journals/world-politics/article/the-middle-income-trap/68926E62CA9AE38B9D48FDA3E572AC62).

I hope these comments are helpful. Many thanks for giving me the opportunity to review this paper.


Theodore Moran, Holger Görg, Adnan Serič, and Christiane Krieger-Boden - Response to referee report
April 19, 2018 - 12:18

see attached file