In the 1990s, foreign direct investment began to swamp all other cross-border capital flows into developing countries. Does foreign direct investment support sound development? In particular, does it contribute to poverty reduction?

The textbook experience of poverty can be witnessed in a number of developing countries in Sub-Saharan Africa, South-East Asia and Latin America. Accordingly, Foreign Direct Investment (FDI) has been identified as an important tool for poverty reduction, as it is noted to accelerate economic growth and employment in a nation, and is currently an essential issue for countries such as Uganda. This book finds that Ragnar’s 1953 ‘Vicious-Circle of Poverty’ remains undisputed even today, showing that attracting FDI is not the end, but that a nation’s absorption capacity is equally paramount. The implications of the FDI ‘frog-leap theory’ for developing countries and the Community Capital Absorption Capacity Development (CCACD) framework provide plausible poverty reduction approaches in the 21st century. Without such measures, bringing an end to poverty is likely to elude governments and multinational corporations in developing countries.

In the 1990s, foreign direct investment began to swamp all other cross-border capital flows into developing countries. Does foreign direct investment support sound development? In particular, does it contribute to poverty reduction?Foreign direct investment is a key ingredient of successful economic growth and development in developing countries - partly because the very essence of economic development is the rapid and efficient transfer and cross-border adoption of quot;best practices.quot; Foreign direct investment is especially well suited to effecting this transfer and translating it into broad-based growth, not least by upgrading human capital.Growth is the single most important factor in poverty reduction, so foreign direct investment is also central to achieving that important World Bank goal. Government-led programs that improve social safety nets and explicitly redistribute assets and income might direct more of the fruits of growth to the poor. But these are complements - not alternatives - to sensible growth-oriented policies. And growth is needed to fund these government-led programs.Moreover, the delivery of social services to the poor - from insurance schemes to such basic services as water and energy - can clearly benefit from reliance on foreign investors.In short, foreign direct investment remains one of the most effective tools in the fight against poverty.This paper - a product of the Private Sector Advisory Services Department - is part of a larger effort in the department to analyze the role of private sector development in poverty reduction.

Economic growth remains a necessary ingredient for poverty reduction. Recent studies suggested that growth tends to lift the incomes of the poor proportionately with overall growth. Investment is known to be the engine of sustainable growth and due to the huge gap that exist between the required rate of investment and the existing rate of savings in LDCs, thus FDI is a vehicle to generate growth and an important ingredient to poverty reduction.

During the 1990s, Vietnam experienced high economic growth, significant reduction in poverty and remarkable inflows of foreign direct investment. The book aims at examining impacts of foreign direct investment on economic growth and poverty reduction in Vietnam during 1986-2001 analytically and empirically. The triangulation methodology is used. Conclusions are that foreign direct investment contributed significantly to Vietnam's growth and this worked mainly through capital accumulation and intra-industry spillover. Economic growth in turn reduced poverty. Direct impact of foreign direct investment on poverty was insignificant at the national level but significant in three localities where most foreign investors located. Foreign direct investment thus helped reduce poverty in Vietnam.

Relatively little is known about how regional integration affects poverty. Many suggest that increased investment would be one of the benefits of agreeing on regional integration provisions but this has not been put to the empirical test for South-South integration. This volume examines the channels through which regional integration affects poverty and empirically analyzes the effects on foreign direct investment.

This Book Is Based On Policy Papers Written During The Nineties At The Ministry Of Finance. The Fundamental Objective Of Economic Policy Is To Generate Equitable Economic Growth And Thus Bring About The Increased Well Being Of All Citizens. The Goal Of These Policy Papers Was To Remove Policy Distortions That Were Hindering Growth And Productivity And To Introduce Economic And Institutional Reforms That Would Accelerate Growth. The Policy Recommendations Were Shaped By Theory And Empirical Evidence On The One Hand, And By Institutional/Organisational And Socio-Political Constraints On The Other.