DEVELOPING COUNTRIES' REGULATIONS OF FOREIGN DIRECT INVESTMENT: A THEORETICAL AND EMPIRICAL ANALYSIS

This study focuses on the existence in some less developed countries (LDCs) of certain regulations directed at multinational companies' foreign direct investments. Its objectives are to: (1) trace the emergence of these regulations; (2) develop a model based on their common policies; (3) apply the model by proposing a procedure for monitoring such regulations; and (4) analyze their implications for the relationship between LDC hosts and the multinationals.; The emergence of these regulations (called national entry control systems, NECs) is examined by analyzing an international trade model and also by reviewing the pertinent development literature with an emphasis on the role played by multinational companies. In order to identify the common policies (=elements) of NECs and develop a model through which they can be monitored, a selected group of LDCs (as well as developed countries) are studied. The selection criteria reflect our desire for having both a geographical and an economic diversity and the requirement that foreign investments be approved by host governments so that NECs can be monitored. To apply the model, a monitoring procedure is proposed which consists of details of the objectives of each element, the required data, and a comparative analysis of data. Finally, some prevailing views on international relations are examined and contrasted with the "NECs-based" approach.; The results indicate that NECs have come to exist mainly due to LDCs' rising economic nationalism as reflected in the desire for greater local control of foreign investments. Some elements of NECs are consistent with theoretical models whereas others can be justified only on practical grounds. Furthermore, our findings show that various NECs each contain several distinct elements many of which are common to our surveyed countries. Selection of those common elements which can be monitored leads to our model consisting of "approval" as its prerequisite and six elements pertaining to economic activities, locations of foreign investments, local ownership, local acquistions by the multinationals, and requirements for local-contents and exports. Next, the application of the model to sme existing NECs reveals: a lack of data for monitoring the control systems; inequality between attaining local ownership and exercising local control; the success of one host in achieving its objectives relating to an element and the failure of another host with respect to the same element; and, overall, the importance of internal manpower development in terms of domestic industrialists, businessmen, and technical staff. Finally, the available data is used to point out that the future relationship between LDC hosts and the multinationals will likely continue to be based on NECs. However, host governments' political stability, degree of restrictiveness of NECs, attractiveness of incentives offered, international competition among multinational companies, and internal manpower development by the hosts will dictate the extent to which the NECs-based approach will be effective.; The model developed in our study has extensive applicability, with the monitoring results being useful not only to the host governments but to academicians, potential investors, and international consultants as well. Our study forms the base for future research emphasizing the resource allocation consequences of NECs and also the potential impact of these regulations on the global operations of the multinationals.