Inward FDI and the Size of the Market: Hosting MNCs or Promoting Domestic Companies?

Abstract

One of the recent policy concerns in the area of development is whether globalization really helps to improve standards of living in developing countries. International organizations advocate the merit of accessing the global economy via foreign direct investment. Anti-globalization movements do not necessarily agree with this view. Those opposing globalization argue that self-interested multinational companies exploit the resources of developing countries and impair development. Thus, for the purpose of long-run economic growth, it may be better to protect domestic infant industries rather than rely on foreign capital.

This chapter is reproduced from Tomohara (2004a) after minor revisions. I gratefully acknowledge suggestions by Li Ming Dong, Harvey Gram, Joseph Harrington, Edi Karni, Ho Jin Lee, Jennifer Roff, Molly Sherlock, Katie Winder, and Alan Weinman. I also would like to thank to seminar participants at Columbia University, Cornell University, Georgia Southern University, the City University of New York, and the Johns Hopkins University for their comments. All errors are mine.