Screening Foreign Direct Investment in LDCs: Empirical findings of the Colombian case (1967-1975)
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INTRODUCTION* Negotiating an entry into the untapped LDCs' market in Latin America, Asia, or Africa has become a current issue for many large- and medium-sized international firms. In an effort to establish a normative order for direct investment, the Andean countries of Bolivia, Colombia, Chile, Ecuador, Peru, and Venezuela adopted in 1970 a common strategy toward foreign investment that is generally referred to as the Andean Pact or Decision 24 of the Andean Pact. This regulatory scheme which called for the creation of a Foreign Investment Screening Board has had a demonstrable effect on LatinAmerican countries, such as Argentina, Mexico, and Brazil, as well as countries in other areas, such as Egypt and the Sudan. Colombia has played a major role in establishing a foreign investment screening system among the Andean countries.' This article presents an empirical study of a Foreign Investment Screening Board, based on extensive interviews and field work, to point out the disparity between official regulations and actual practices and to identify factors in the Colombian system that could explain this gap. THEHOST The notion of a Foreign Investment Screening Board involving the negotiation of an COUNTRY entry contract is fairly new; the first such scheme was devised by Indonesia in 1967.2 SCREENING Richard Robinson has presented an interesting entry control system in which he conSYSTEM siders as given the host country characteristics (level of protection, exchange controls) and a set of government policies.3 This model may be complemented by historical, political, economic, and external factors that affect the host government's policies and its enforcement of entry regulations. (See Chart I.)4 Past experience with foreign investors is a primary factor in the emergence of regulatory provisions and the content of specific restrictive measures. A historical study of such experience is necessary to clarify a country's image of foreign investors and create the general psychological tone for decision making. In order to anticipate future regulations regarding foreign investment, the analyst must also assess the contribution of the multinational company (MNC) as against the objectives of the host country planners and the way they have been perceived. Economic arguments often hide political issues, and the emergence of host country regulations is indeed, in part, a political
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*Dr.Lombardholds a Ph.D.fromthe Universityof Pennsylvania.Whenthis articlewas prepared, he was on the Facultyof the IAE-CEROG, Universityof Aix-en-Provence(France)and is currently withthe InternationalFinance Corporation(IFC).The views expressed in this articleare those of the authorand do not necessarily reflectthose of IFC. The authorwishes to acknowledgehelpfulcommentsfromAlanC. Shapiroand FranklinR. Root of the WhartonSchool. Also, RichardBurtonof Duke Universityand MichelAmsalem of IFC commentedon a preliminarydraft.Partof this research was made possible througha research grantof the FondationNationalePourL'Enseignementde la Gestionen France
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