The recent industrialization of several East Asian countries supports the idea that with the right strategies, LDCs can indeed jump ahead and profitably enter world markets. The main problem with the alternatives to FDI discussed above is that to be practical in LDCs, such licensing or subcontracting agreements must be accompanied by financial investment. Although some point to the stability of FDI relative to indirect investment as a reason for favouring FDI, this view is short-sighted: in the long range FDI too is mobile, so a country can only achieve long-term stability through developing its own technological base and domestically-owned production. UNCTAD found that successful East Asian countries strongly invested in “improving local skills, institutions and supplier capabilities” (2000). In addition, these countries “imported technology vigorously from leading TNCs, but assigned FDI a secondary role” (UNESC 2003: 10) and promoted a high level of subcontracting (Radosevic 1999: 25). Overall, these countries “have used international transfer as a channel for actively investing in learning.... In other developing countries international technology transfer has been much less intensively linked into the process of domestic technology accumulation” (Bell and Pavitt 1993 as quoted in Radosevic 1999: 85).

However, recent shifts in trade rules, the growth of TNCs, and the accelerating pace of change makes it increasingly difficult for LDCs to enter world markets (UNESC 2003: 11). Yet this trend merely strengthens the argument for the importance of innovation strategies. The remaining problem is that large corporations would rather use FDI than other methods so that they can maintain a tighter rein on their technology (James 1994: 159-162). If a country insists upon non-direct investment, the corporation (often with more resources than the country’s GDP) can threaten to invest elsewhere, exerting “an inordinate amount of pressure on countries to acquiesce” (O’Brien and Williams 2004: 193). The best solution to this is a global agreement to raise standards pertaining to foreign direct investment, such as the Trade-Related Investment Measures (TRIMS) discussed in the World Trade Organization (O’Brien and Williams 2004: 160). Such a treaty could require that foreign investment improve local innovative capacity, for instance by raising taxes to invest in infrastructure and education. Although this may have the negative effect of temporarily reducing the desirability of foreign investment, it is necessary for the long term development and competitiveness of these countries.

Clearly, the innovation economy is crucial for understanding the effects of FDI and the corresponding policy implications for LDCs. “The utilization of high levels of technology and policies that encourage efficiency and promote competition are the new imperatives to international competitiveness” (O’Brien and Williams 2004: 193). In order to compete in the world market, firms and countries increasingly need to focus on innovation. This means more than merely transferring technology, but rather creating a steady stream of new, applicable knowledge. In order to accomplish this, governments must commit more than ever before to investing in education and infrastructure so that technology can be actively accumulated and innovation is encouraged. Firms can start out in sectors which are still the least innovation-intensive and subsequently work their way up the value-added ladder. It is a long road to follow, but if LDCs can succeed in truly plugging into the innovation economy in this way, they have a chance of catching up rather than just following behind.

 
   
references =>  

 
 
page   1  2  3    5