Multinationals and the Developing Countries
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the
Countries LouisT.Wells,Jr.* HARVARDUNIVERSITY
In Mult'inational Enterprise and Caves Econom-ic Analysis provides a summary of ecoon multinomic research nationals and developing countries. Yet, for policy makers major questions remain unanswered. The gaps can be grouped into four categories: the impact of the widespread change in development strategies on multinationals, the net impact of foreign direct investment on host countries, the causes of declining tensions between developing countries and foreign investors, and links between our economic knowledge and the decisions that face private and government managers.
The
second edition of Multinational
Enterprise and Economic Analysis
attemptsto capturewithin260 pagesthe economic research on multinational enterprises(MNEs)to date.Yet,in spite of the comprehensiveness of thebook,as *
well as its simultaneous brevity, I was struckby its shortcomings in addressing the issues that face managers - public and private - who are concerned with foreign direct investment (FDI)and the developing countries. The gaps are not the fault of Caves; he accomplishes as much or more than what he promises in the title of his book. But many of the issues that are important to policy makers and managerseither have not attracted sufficient attention from economists, or are such that economic analysis is insufficient to shed adequate light on them. In the case of some recent problems, the gap between research and its publication may explain a few of the lacunae. The gaps for researchersto fill are manifold, especially if investigators do not constrainthemselves to economic analysis alone. First, a warning. Although Caves' Chapter 9 is entitled "Multinationalsin Developing Countries," it is inevitable that the contents of other chapters are relevant to this subject. A few examples: otherpartsof the book deal with the joint venture decision (Chapter 3), market behavior of multinationals (Chapter 4), employment and wages (Chapter5), and the effects of taxation on multinationals'
Herbert F. Johnson Professor of International Management, Graduate School of Business Administration, Harvard University.
JOURNAL OF INTERNATIONALBUSINESS STUDIES, 29, 1 (FIRSTQUARTER1998): 101-114.
101
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MULTINATIONALS AND THE DEVELOPING COUNTRIES
behavior (Chapter 8 and 10, as well as Chapter 9). These are important concerns of policy makers in developing countries. From the point of view of the host country, two broad questions face policy makers: * Is FDI good for the country? Appropriate to the task he undertakes, Caves puts the question in economic terms only: "Does the MNE's presence mean more capital formation or productivity growth than otherwise?" * How can government policy make the impact of FDI more favorable? Caves again puts it somewhat differently: "Can sticks and carrots be applied to the MNE to produce more desirable allocations?"
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