Multinational Firms, Regional Integration and Globalising Markets: Implications for developing countries

It is axiomatic that the potential of FDI to act as a catalyst for economic development varies by its motivation, and the competence level and scope of foreign-owned affiliates. This chapter seeks to examine the effect of regional integration (RI) on MNE strategies while acknowledging other globalisation-related developments. We examine MNE strategies in developing countries in four scenarios; (1) in a non-RI, preliberalised environment; (2) with RI in a pre-liberalised environment (3) in a non-RI, post-liberalisation scenario, (4) RI in a post-liberalisation scenario. We also distinguish between least developed countries (LDCs), and intermediate developing countries, within North-South and South-South RI. Liberalisation and a shift in policy orientation have had a greater affect on MNE strategies than integration. Globalisation of MNE activity and liberalisation has led to a downgrading of MNE activity in most LDCs. Much of the gains in FDI flows have been a result of redistribution, associated with privatisation. Countries with a threshold level of domestic capability and more efficient institutions have benefited from increases in the quality of FDI. RI schemes have reinforced these trends, benefiting those countries that have a viable domestic sector, and have created the appropriate multilateral institutions to exploit cross-border efficiencies. In general, South-South RI in a postliberalised world has had limited benefits for LDCs relative to intermediate developing countries. RI schemes need to be seen as an opportunity to respond gradually to globalisation in a controlled and stepwisemanner, and not as an alternative to multilateralism. Forthcoming in: (Robert Devlin and Antoni Estevadeordal, eds) Trade and Regional Integration in the Development Agenda, Brookings Institution, Washington DC, 2002 Rajneesh Narula is Professor at the Copenhagen Business School, and the Centre for Technology, Innovation and Culture (TIK Centre), University of Oslo.