COMCEC Trade Outlook 2016
40
diversification and reached positive results. Focusing on the Low Income Countries, Jayawera
(2009) found that the cumulative effect after four years of a US$1bn increase in FDI is estimated
to be the creation of 83.5 new export lines for the host countries. Iwamoto and Nabeshima
(2012) have tested the impact on 175 countries. They found out that, FDI inflows have positive
impact on export diversification of the developing countries, but no significant effect on
developed countries. The reason according to the studies is that the Multinational Corporations
(MNCs) are more diversified and developing countries are affected by the spill-over effects of
the FDI brought by theMNCs. Another study by Hailu (2010), examined the impact of FDI inflows
on Sub Saharan Africa countries. The study found out that a 1 percent increase in FDI in the
previous year brings about 0.043 percent increase in exports of the following period.
Several studies concentrated on how the FDIs lead to export diversification. Lipsey (2004) and
Hailu (2010) suggest that FDIs main contribution is knowledge of the international markets.
FDIs also result in indirect inter and intra-industry spillovers to host nation firms which improve
their productivity and reduce the fixed costs associated with exporting, thereby increasing the
number of firms which are export competitive (Jayawera 2009). Spalla (2010) also suggests that
FDIs contribute to international competitiveness of the domestic firms through transfer of the
know-how and technology.
The performance of the OIC Member States, except for few in attracting the FDI, is low. Figure
40 below gives the FDI inflows to top ten OIC Member States. FDI inflows to these countries
amounted to USD 132 billion in 2014 according to the UNCTAD, representing 70 percent of the
total FDI inflows to the OIC Member States. The other remaining 47 countries attracted nearly
USD 41 Billion FDI in 2014.
Another obstacle faced by most of the Member States is the concentration of the export oriented
FDIs on traditional sectors. Harding and Javorcik (2011) underlined that, if the FDI exports are
only products that the host country already exports
intensively, the efficiency-seeking FDI could move
towards more specialized rather than more
diversified exports. Thus, FDI does not contribute too
much to export diversification. For example according
to UNCTAD (2011), which investigated the sectorial
distribution of the FDIs in LDCs, many large projects
are in the form of greenfield and expansion projects
prospecting for reserves of base metals and oil. The study also cited the lack of political stability
and unavailability of skilled workers as main reasons for low performance of investment in the
manufacturing sector in Africa.
“FDI Inflows are
inadequate for export
diversification
in many Member States”