OFDI Principles
This final section lays out 7 OFDI Principles. These Principles are general insights developed from the Toolkit, and are aimed to provide overall guidance to policymakers, governments and stakeholders on ways to approach OFDI, home-country effects, HCMs, and their sustainable development implications. They can be useful to governments when developing their policies and strategies on outward investment. Implementation of any specific measures and policies will differ depending on the circumstances and requirements of each individual economy. The statement of each Principle is followed by a brief explanation.
1. Outward foreign direct investment generates home-country effects, including those that promote the economic and sustainable development of home countries.
This Toolkit has identified 11 types of home-country effects, and its collection of evidence has shown that many of them have been empirically proven to exist. Strong and repeated empirical evidence was found for exports and domestic production, know-how and technologies, productivity and economic growth effects. For other effects, there was some empirical support or a strong theoretical plausibility. Moreover, many of these effects contribute to the economic and sustainable development of home countries and can be especially important for developing countries. Also encouraging is the observation made in this Toolkit that there are only very few risk factors associated with OFDI. The implication for policymakers, governments and other stakeholders is that home-country effects need to be considered in economic and development policymaking.
2. Home-country measures can be employed to regulate, manage, facilitate and promote outward foreign direct investment.
HCMs can be useful to regulate, manage, facilitate and promote OFDI in accordance with prevailing policy priorities, especially as there are many different types of OFDI with a variety of implications in home and host countries. These measures can be combined into broader OFDI policies, regulatory frameworks and arrangements for promotion and facilitation of OFDI. It is important to consider if, how, and by how much to employ HCMs. For example, any regulations should not be unnecessarily restrictive and any arrangements for OFDI promotion and facilitation should be specified in sufficient detail. Restrictions on OFDI should be regularly evaluated and their removal considered should they not be necessary. Many developing countries still have OFDI restrictions for a variety of reasons, but these need to be justifiable against the potential benefits of OFDI for home economies and the recent evolution of developing countries towards becoming major new sources of OFDI.
3. Home-country measures can be deployed to nurture and maximise home-country effects, by targeting these measures at companies and investment characteristics that are known to influence the generation of home-country effects.
HCMs can be targeted at specific types of companies and investment characteristics. Such targeting can be used to support those companies and investments that are known to influence the generation of anticipated home-country effects. As different targeting strategies promote different home-country effects, HCMs and associated targeting strategies can be calibrated to nurture and maximise those home-country effects that the government considers a priority and of particular importance for home-county sustainable development. These priorities and resulting targeting strategies might need to be identified and chosen through a defined process, involving stakeholder consultations.
4. Domestic economic policies can help create an enabling environment for outward foreign direct investment to benefit the home economy.
It is possible to create an enabling environment in the home country in which the benefits of OFDI for the home economy can be maximised. Such an enabling environment includes supportive infrastructure, strong institutions, widespread linkages, advanced human capital, high skills levels, etc. All these can be advanced through corresponding government efforts and policies, such as investing in R&D and human capital development, promoting inter-firm linkages and business networks, creating supportive institutions, facilitating institutional partnerships, creating and constructing key infrastructure, improving public and private sector governance, etc. One result is an enhanced level of absorptive capacity that enables the home country and its firms to benefit to a greater degree from the gains brought about by OFDI, especially gains in know-how, technological capabilities, upgrading and productivity. In addition, these efforts can improve the transmission channels through which the benefits from OFDI reach the home country.
5. Home-country measures and associated outward foreign direct investment policies can be incorporated into broader economic and development strategies, complementing other areas of economic and development policy.
HCMs and associated OFDI policies can be included into broader economic and development strategies, such as those laid out in development strategy documents, Masterplans etc. This will be particularly beneficial if HCMs and OFDI policies are complementary to efforts in other areas of national and international economic and development policy. Complementarity with inward FDI is particularly important, given that inward and outward investment can reinforce each other, though other areas such as trade, migration, industrialisation, domestic investment and SME development also matter. It is important to achieve policy coherence across these different areas. The needs and requirements of the domestic private sector are also a necessary consideration.
6. Home-country measures should be used transparently and consider the interests of both home and host countries.
HCMs are aimed at companies and OFDI characteristics of home countries, but also have implications for host countries of the resulting investments. In most cases, such implications are positive or neutral, as when the investments supported by HCMs have a positive impact in the host country and the conduct of multinationals enterprises is monitored by the home country government. However, some HCMs also raise questions about competitive neutrality, political economy implications and other issues in host countries. It is therefore important that all HCMs are transparent and openly published so that any stakeholders, including companies and host country policymakers, have the option to review them if they so desire. HCMs should be introduced so they are beneficial to both home and host countries and their companies.
7. Research and policy analysis are important to expand knowledge and evidence on outward foreign direct investment and its implications for sustainable development.
This Toolkit and its many insights were built on a growing body of research and policy analysis, and associated expansions in knowledge and evidence on OFDI and its implications for sustainable development. However, home-country effects remain under-researched. More such research and policy analysis are still needed to gain further in-depth understanding of different types of OFDI, individual home-country effects, specific HCMs, each of the targeting strategies, the potential risk factors and the implications for sustainable development. Further research and policy analysis will result in increasingly refined information based on which governments, policymakers, companies and other stakeholders can make their OFDI-related decisions.