Rethinking foreign infrastructure investment in developing countries

Ramamurti, Ravi; Doh, Jonathan P.
May 2004
Journal of World Business;May2004, Vol. 39 Issue 2, p151
Academic Journal
The 1990s witnessed a boom in foreign direct investment (FDI) in infrastructure sectors in developing countries, which was surprising for at least two reasons. First, infrastructure sectors, unlike manufacturing, suffer from the “market failure” problem, and the solution to that problem—government regulation—brings with it the “obsolescing bargain” risk. Second, such investments are even riskier when made in developing countries, which are characterized by weak institutions and political instability. Why, then, did the boom occur, and will it continue? Three industry-specific drivers and two country-specific drivers are considered for the boom. Foreign investors may have believed: (1) that infrastructure sectors were losing their “natural monopoly” characteristics; (2) that first-movers would profit handsomely from the emerging globalization of these sectors; (3) that novel techniques like project financing would reduce their risks sharply; (4) that the climate for FDI in developing countries had changed fundamentally in the 1990s; and (5) that host developing countries would not expropriate foreign-owned infrastructure assets as they had in the past. Based on actual experience in the 1990s, we evaluate the strengths and limitations of each of these drivers. Our overall assessment is that infrastructure FDI in developing countries will stabilize in the future at a lower, more sustainable level. We conclude with policy implications for multinational corporations (MNCs) and governments.


Related Articles

  • Transnational Investing.  // Futurist;Mar/Apr2001, Vol. 35 Issue 2, p9 

    Focuses on foreign investment trends in developing countries in 2000. Business practices of multinational companies; Challenges presented by transnational business; Statistics on countries that received foreign investments in 1999.

  • Differentiating Extractive Manufacturing and Service Investments in LDCs. Stoever, William A. // Review of Business;Spring/Summer2000, Vol. 21 Issue 1/2, p23 

    Discusses the problems facing foreign investors in less developing countries (LDC). Objectives of the multinational corporations; Most important benefits that host LDC hope to obtain from extractive industries; Reason manufacturers normally are not concerned with the host's balance-of-payments...

  • The Role of the Multinational Corporation: Discussion. Ozawa, Terutomo // American Journal of Agricultural Economics;May81, Vol. 63 Issue 2, p393 

    Comments on the article about the role of multinational companies in developing countries. Nature of multinational companies; Overview of the abuses of multinationals; Limitations of the product-cycle theory of foreign direct investment.

  • Multinational corporations and the Third World: the case of Japan and Southeast Asia. Weinstein, Franklin B. // International Organization;Summer76, Vol. 30 Issue 3, p373 

    The dramatic transformation of the climate surrounding relations between rich and poor nations since the OPEC oil embargo in 1973 has raised new hopes that MNCs may be made to energize development in the Third World. Improved information about the vulnerability of the rich nations and about...

  • COMMON PROBLEMS.  // Director;Dec2000, Vol. 54 Issue 5, p35 

    Reveals the results of a survey on the common problems facing international companies moving into emerging markets. Rate of the incidence of red tape and bureaucracy; Warning signs that investors should look out for.

  • Emerging countries' multinational companies investing in developed countries: at odds with the HOS paradigm? Andreff, Wladimir; Balcet, Giovanni // European Journal of Comparative Economics;2013, Vol. 10 Issue 1, p3 

    The paper analyses the new trend of outward foreign direct investment (FDI) by multinational companies from emerging countries, in particular the BRICs, in developed countries to question the applicability of the traditional HOS theoretical framework to this trend. A literature review shows that...

  • International Risk Forecast.  // Risk Management (00355593);Apr85, Vol. 32 Issue 4, p120 

    This article discusses the report by Frost & Sullivan's Political Risk Services Division on the 1985 political climate for international business, which includes a forecast of risk in several countries. According to the report, the need for foreign investment by developing countries should keep...

  • MULTINATIONAL CORPORATIONS AND DEVELOPING COUNTRIES. LaPalombara, Joseph; Blank, Stephen // Journal of International Affairs;Spring/Summer80, Vol. 34 Issue 1, p119 

    Characterizes the role of multinational corporations in the development of foreign policy among developing nations. Background on foreign direct investments in developing countries; Increase in the differences between developing nations; Patterns of policies toward multinational corporations.

  • Supply chain capability as a determinant of FDI. Alam, Arshad; Bagchi, Prabir K. // Multinational Business Review (Emerald Group Publishing Limited);2011, Vol. 19 Issue 3, p229 

    Purpose – The choice of an investment location by a multinational enterprise (MNE) is determined not only by firm-specific variables that define the motive of foreign direct investment (FDI), but is also determined by variables that define locational aspects. The purpose of this paper is...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics