Suggest measures to increase competitiveness of domestic enterprise sector in a developing country such as Pakistan.
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Answer:
Foreign direct investment (FDI) in developing countries has a bad reputation. In some discussions, it is presented as tantamount to postcolonial exploitation of raw materials and cheap labour. However, recent data shows that FDI in developing countries increasingly flows to medium and high-skilled manufacturing sectors, involving elevated income levels (Figure 1). What’s more, many emerging economies have built their growth on FDI flows.
Quality FDI
The trick is to attract “quality FDI” that links foreign investors into the local host country economy.
Quality FDI is characterised as:
contributing to the creation of decent and value-adding jobs;
enhancing the skill base of host economies;
facilitating the transfer of technology, knowledge and know-how;
boosting competitiveness of domestic firms and enabling their access to markets; and
operating in a socially and environmentally responsible manner.
To achieve this, host countries cannot just wait and see what international market forces may bring to them. Rather, they need tailored policies to overcome domestic imperfections that hinder the smooth integration of indigenous and foreign firms into world-wide supply-chain networks.
Recent research offers evidence for strategies in developing countries that successfully turned FDI into quality FDI. The idea underlying the following suggestions is to learn the lessons from experience (Moran et al., 2016).