Policies to Attract Investment
A good written policy identifies and evaluates ways in which resources may be allocated to achieve certain goals, both economic and social. Most most written policies fall short of providing all information useful in development, but there is a minimum amount of information needed to make the policy useful to present and future administrators.
The advantages that multinational enterprises look for in a country fall into three categories: Industry specific, enterprise specific and country specific. Industry specific advantages are related to market structure and the economies of production. Enterprise specific advantages include access to markets or resources and are concerned with economies of size and integration. Examples of country specific advantages include educational systems and facilities for research and development.
Governments need to be aware of the advantages that companies look for in formulating their policies so that they can increase the number of advantages that their country has compared to other countries. Types of government intervention include outright government ownership of enterprises, government cooperation, labor training, patent and trade legislation, government sponsored research and development and favorable tax rates. Other legislation that can attract foreign investors concern exchange rate policies and labor laws.
Not only does each country need to direct its policies toward attracting foreign investment, but each country needs to assess its own needs. If a government needs to encourage development that would increase the standard of living, it should give priority to attracting consumer goods industries rather than heavy and capital goods producers. When upgrading housing is the goal, government is usually successful by encouraging construction of housing for the middle and upper-classes. Historically, housing for the poor has come into existence when more affluent families built new homes and deserted their own neighborhoods , rather than when the government actually constructs low-cost housing for the poor.
To attract industries, governments should make their best efforts to make public utilities available. Also, many businesses are concerned about the power of labor groups that may be perceived as radical and prefer to operate where laws restrain wage and dividend advances relative to prices. It is in the interest of the country to protect its sovereignty or right to make its own decisions about what areas in which it wants to make progress, therefore, governments may want to control capital movements to control access to their domestic markets.
Many government programs to attract multinational enterprises involve subsidizing a business. A break-even subsidy enables a plant in an assisted area to be fully compensated for all costs associated with locating in a country. An effective subsidy will exceed the break-even subsidy compensating the enterprise for market uncertainty.
