In recent years, the issue of home country measures for technology transfer to
developing countries has gained prominence, particularly in the international
agreements. Home country measures are regarded as capable of increasing the flow of
resources and knowledge to the countries that require them most but cannot acquire
them through market mechanisms. This paper examines whether home country
measures can play a role in increasing the quantity and quality of FDI to developing
countries.
The studies relating to foreign direct investment (FDI) flows to developing countries
mainly deal with the question of what host countries have to do to attract and reap the
full benefits of FDI and less with the role of the home country. The role of the host
country is crucial for attracting and absorbing FDI, but there is also potential for
improving both the quantity and quality of FDI by means of home country measures and
thereby contribute to a positive development in recipient countries.
This important role of home country measures has been recognised by several
multilateral organisations. For instance, the Agreement on trade-related intellectual
property rights (TRIPS) has a provision on the role of the home countries: “Developed
country Members shall provide incentives to enterprises and institutions in their
territories for the purpose of promoting and encouraging technology transfer to leastdeveloped
country Members in order to enable them to create a sound and viable
technological base” (WTO, TRIPS, Art. 66.2). Subsequent to the Agreement on traderelated
investment measures (TRIMS), which reduced host country regulation on
inward investment, the home country measures have assumed greater importance in the
context of development in host countries.
FDI is probably the main channel of technology transfer, including both technical and
managerial know-how as well as various types of spin-off effects. For some countries, it
is not easy to attract FDI due to its tendency to concentrate. FDI flows are primarily
concentrated within the so-called "triad" countries, i.e., the EU, the USA and Japan.
Some FDI goes to the more prosperous developing countries, mainly the newly
industrialised economies. The developing countries’ share of total FDI is, however,
decreasing. According to UNCTAD (2001a), their share - in the year 2000 - constituted
19 percent as opposed to 30 percent just ten years ago. The group of Least Developed
Countries - the 49 poorest developing countries - got only 0.35 percent of the worlds
FDI flows and 1.8 percent of total FDI received by developing countries. Moreover, the
Least Developed Countries are less equipped for reaping the benefits of even this
limited FDI inflows, owing to structural difficulties.
Therefore, new initiatives to improve the quality and increase the flow of FDI to these
countries are needed. The home countries can step in to complement the efforts of host
countries. Many home countries have outward investment promotion activities, which
are implemented by the outward investment agencies. Hence, the activities of these
agencies may provide an indication of the home countries’ policies on outward