Designing policies to harness the benefits of foreign direct investment (FDI) for sustainable development

Impact Area: International Business, Industry-Labour relations, International Development
Institution: Manchester Business School at Manchester Metropolitan University
Leading Academic: Professor Heinz Tüselmann and Dr Stephen R. Buzdugan

Project Background

Foreign direct investment (FDI) and the related activities of multinationals companies (MNCs) have an important part to play in sustainable development, industrial upgrading and inclusive growth in both developed and developing countries, as well as in “levelling-up” of disparities across regions. This comes at a time when there are increasing demands for MNCs and their inward FDI to be more beneficial for all FDI stakeholders, such as investors, host countries, regions and employees. Against this background, numerous countries are aiming to develop smarter policies and reform their investment and industrial policies, including the UK Industrial Strategy and the Levelling-Up agenda.

The Research

Research undertaken by academics at Manchester Metropolitan University generated new insights on the nexus between inward FDI, industrial policy and development. Earlier research by Professor Tüselmann demonstrated that when MNCs are deeply embedded in their host economies, they can play a major role in anchoring and upgrading FDI towards higher value-added activities (HVA). This leads to the creation of ‘win-win’ situations for host countries and regions – in terms of productivity, skilled job creation and export growth – and investors, by contributing to overall MNC competitiveness and performance.  The research by academics at Manchester Metropolitan University, which built on these findings, resulted in the development of a new conceptual policy framework for industrial and investment policy, linking more open industrial policies to both societal and company benefits, creating a mutually beneficial approach to attracting and developing HVA FDI. This entails modern, market-friendly, but pro-active industrial policies aligned to countries’ investment policy frameworks and informed by internationalisation processes within MNCs.

The Impact

The research and the new policy framework for industrial and investment policy had significant impact on international and the UK investment policy making. The findings influenced the revision and further development of international investment frameworks and their interaction with modern market-friendly industrial policies. This helps governments and their agencies to maximise positive outcomes for host countries and regions. It shaped policy debate and policy recommendations through written and oral evidence at High Level United Nations Conference on Trade and Development (UNCTAD) Expert Group Meetings on Investment for Development. It contributed to the further development of UNCTAD’s Investment Policy Framework for Sustainable Development (a key investment policy tool used in more than 150 countries) and helped to reform investment policies through UNCTAD’s Investment Policy Roadmaps, which have been implemented around 400 times across 50 economies. As the Head of UNCTAD’s Investment Policy Branch attested to:

“…. Your evidence for UNCTAD High Level Expert Group Meetings, based on your research was very helpful to shed light on the industrial policy-investment agreement nexus… your contribution was of great help in the review and further development of UNCTAD's Investment Policy Framework for Sustainable Development and the Roadmap to IIA Reform….”.

The research also directly contributed to UNCTAD’s Investment Policy Toolkit for Industrial Policy Models, included in the 2018 World Investment Report. The Toolkit has had the most significant impact thus far in relation to special economic zones (SEZs) in Africa.

In the UK, it provided vital evidence to a variety of Parliamentary Committee Inquiries, featuring prominently in their subsequent reports and taken up in a number of important policy recommendations. It informed the House of Commons International Development Committee’s Report on DFID’s 2017 Economic Development Strategy to include the promotion of industrial policies in developing countries in DFID’s economic development strategy moving forward; to maximise the benefits of the UK’s investment-led development policies. The evidence submitted to the House of Commons International Trade Committee on FDI in relation to productivity capacity building, conditions for anchoring and upgrading FDI in host regions and the related link to MNC needs and objectives, featured prominently in their 2021/22 Inward Foreign Direct Investment Report. The report’s policy recommendations in relation to maximising the FDI benefits across the UK, the role of FDI for levelling-up opportunities across UK regions and DTI strategy to align to long term government objectives, drew considerably on the research findings by these academics and their new policy framework.

Further information is available: https://www.mmu.ac.uk/business-school/research/real-world-impact/developing-smarter-policies/