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This paper argues that foreign direct investment (FDI) can make
a very important contribution to development. The nature and level of
benefits for developing countries and transition economies from FDI has
become a much more controversial topic. While the accelerated growth of
surging Asian economies, especially China, suggest that FDI in the right
circumstances can be considered an important ingredient for economic
advance, the debate over technological and other spillovers from FDI has
shifted decisively against the existing presumptions regarding ‘automatic’
FDI benefits to the point of questioning their very existence based on East
European and Latin American experiences. As a consequence, more and
more developing countries and transition economies now make significant
efforts to compete to attract ‘quality’ FDI at the same time that they also
seek to ensure that they effectively benefit from the FDI they receive.
To understand this phenomenon, this paper examines existing statistical
information on FDI and the operations of transnational corporations (TNC)
in the context of the new global political economy in which developing
countries and transition economies are becoming much more assertive. In
this new setting many developing countries and transition economies see
themselves as needing general FDI less but wanting quality FDI more. For
these reasons, developing countries and transition economies are increasingly
prone to use active and focused policies to both attract quality or priority FDI
and to ensure that the benefits from such coincide with their developmental
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