Chapter 3 Foreign direct investment as a driver of industrial development: why is there so little evidence?

Purpose This chapter examines the role of foreign direct investment (FDI) in promoting industrial development, and asks, if FDI is such an important avenue to promote development, why is there little evidence on concomitant industrial development in most developing countries? Methodology/approach I look at the secondary evidence on FDI and development and explore some of the causes for this ambiguity. Findings The complexities of global value chains and networks have begun to trivialise the simplistic principle that increased multinational enterprise (MNE) activity automatically implies a proportional increase in spillovers and linkages. Value/originality Policies towards MNEs need to be closely linked and integrated with industrial policy. MNE activity needs to be evaluated by considering the kinds of externalities that are generated; whether and how domestic actors can internalise them, and building up absorptive capacities to achieve this.