Foreign Direct Investment: The Role of Policy

Description

This brief analyzes the policy context in which foreign direct investment (FDI) flows occur. It highlights the value for ADB's developing member countries (DMCs) of incorporating their investment policies in a development perspective, and learning from the experiences of countries that have successfully benefited from FDI. A favorable policy framework for FDI is one that generally provides economic and political stability, transparent rules on entry and operations, equitable standards of treatment between foreign and domestic firms, and secures the proper functioning and structure of markets. In general, empirical evidence suggests that policies encouraging domestic investment help to attract foreign investment. However, the importance of policy does not end there.